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THE INTERACTION BETWEEN SUPPLY CHAIN MANAGEMENT AND MANUFACTURING PLANNING IN AN ELECTRONIC DEFENCE SYSTEMS COMPANY

By

ME MASHININI

MINOR DISSERTATION

Submitted in partial fulfilment of the requirements for the degree

MASTER COMMERCII

in

BUSINESS MANAGEMENT

in the

FACULTY OF MANAGEMENT

at the

UNIVERSITY OF JOHANNESBURG

Supervisor: PROF J. DU PLESSIS

OCTOBER 2012

ABSTRACT

Many manufacturing companies around the world, including South African companies, experience a shortfall in desired outcomes in relation to the potential supply chain management benefits that contribute to efficient manufacturing planning and improved delivery performance. These benefits can be translated into an improved balance sheet, income statement and cash flow. Most companies are aware of the view that supply chain excellence yields more economic benefits by directly linking the benefits of increased shareholder value, but lack the understanding of how to unleash the power of the integrated supply chain approach and systematic intervention. As stated by Slone, Dittmann, and Mentzer (2010:7), the supply chain controls up to 70% of the operating cost, including inventory management, and manages most of the physical assets of the business. However, little research currently exists in terms of directly linking the benefits of best fit between supply chain management and a manufacturing planning approach in an engineering-to-order manufacturing environment. This dissertation investigates the misalignment between supply chain management and manufacturing planning in an electronic defence company.

This study addresses the possible shortfalls in the interaction between the supply chain management approach and the manufacturing planning approach at an electronic defence systems company and focuses on supply chain planning, manufacturing planning, the influence of design and development and the silo organizational structure. Relevant supply chain management interventions are investigated through a literature review, including the supply chain management approach, the value chain and manufacturing planning. The study was conducted in two ways: Firstly, the relevant literature was reviewed and, secondly, an empirical study was conducted at the research site by administering self-administered questionnaires to selected respondents and by collecting data from the enterprise resource planning (ERP) system to gain a rich understanding of the problem addressed by this research.

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The importance of a supply chain approach to sustaining manufacturing planning excellence, and the value chain as a whole, is explained. Summaries of findings are presented and recommendations are made to assist the military defence organization to balance irregular customer demands and the scale of manufacturing. Areas for future research are also outlined, including researching improved tools and application methods to manage and evaluate forecasts demands in the defence industry.

Manufacturing planning in the defence industry is complex as compared to other industries, such as the fast moving consumer goods industry. Consequently, in order to compete globally, organisations require the development of supply chain excellence, as well as the construction of a competitive value chain. One fundamental difference established by the study is that engineering-to-order versus make-to-stock in managing customer demands throughout the supply chain. This dissertation also highlights that the importance of engineering resources in the engineer-to-order case is somewhat different from that in the make-to-stock cars in an electronics defence company in South Africa, and that there is still a gap to be covered for the organization if it is to realize its full potential in terms of integrated supply chain benefits. The research study found that the application of material requirements planning system in these types of organization should be reviewed and an advanced planning system be considered that provides flexibility in a changing environment, in material changes and resources (including engineering resources) changes resulting from product enhancement during production requested by customers or as a result of performance. Product safety enhancement is crucial in the high-tech global competitive environment as well.

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STATEMENT OF ORIGINALITY

This work has not previously been submitted for a degree or diploma in any University. To the best of my knowledge and belief, the dissertation contains no material previously published or written by another person except when due reference is made in the dissertation itself.

------

Mangisi Edwin Mashinini Date

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ACKNOWLEDGEMENTS

Thanks firstly to my supervisor, Prof. J. H. Du Plessis, who has been completely supportive and extremely helpful for the duration of the research project. You have been truly inspirational. Secondly, a special word of thanks goes to my colleagues Mr Lefti Katsaitis and Mr Evert Geldenhuys for their support and encouragement. It has been a great learning experience and great fun; most of all, thank you to my wonderful and supportive family, who have helped to shape my career into what it is today.

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TABLE OF CONTENTS

Page ABSTRACT ...... 1

STATEMENT OF ORIGINALITY ...... 3

ACKNOWLEDGEMENTS ...... 4

TABLE OF CONTENTS ...... 5

LIST OF TABLES ...... 9

LIST OF FIGURES ...... 10

LIST OF ABBREVIATIONS ...... 14

CHAPTER 1 ...... 16

1. INTRODUCTION AND ORIENTATION ...... 16

1.1 Introduction to supply chain management and ITS benefits ...... 16 1.1.1 Supply chain management ...... 16 1.1.2 Supply chain integration ...... 18

1.2 Manufacturing planning supported by supply chain systems ...... 22 1.2.1 Manufacturing execution approaches ...... 22 1.2.2 Enterprise resource planning (ERP) ...... 24 1.2.3 Manufacturing resource planning (MRPII) ...... 26 1.2.4 Inventory management ...... 27

1.3 Study orientation background ...... 29

1.4 Problem statement ...... 34

1.5 Purpose of the study ...... 34 1.5.1 Primary research objectives ...... 34 1.5.2 Secondary research objectives...... 35

1.6 Significance of the research study ...... 35

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1.7 Scope of the research case study ...... 36

1.8 Research Design and Methodology ...... 37 1.8.1 Research design approach ...... 37 1.8.2 Sample design and decisions ...... 38 1.8.3 Data collection ...... 38 1.8.4 Limitations of the study ...... 39

1.9 Structure of the study ...... 40

1.10 Summary and conclusion ...... 42

CHAPTER 2 ...... 43

2. SUPPLY CHAIN MANAGEMENT ...... 43

2.1 Introduction ...... 43

2.2 Overview of integrated supply chain system ...... 43 2.2.1 Supply chain system ...... 43 2.2.2 Integrated supply chain ...... 45

2.3 Supply chain planning ...... 48 2.3.1 Management outlook ...... 48 2.3.2 Supply chain strategies: structure follows strategy ...... 50 2.3.3 Strategic sourcing ...... 55

2.4 Supply chain management ...... 59 2.4.1 Demand forecasting / management ...... 59 2.4.2 Material management ...... 63

2.5 Summary and conclusions ...... 65

CHAPTER 3 ...... 66

3. MANUFACTURING PLANNING ...... 66

3.1 Introduction ...... 66

3.2 Manufacturing planning ...... 66

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3.2.1 Manufacturing planning and control ...... 66 3.2.2 MRP II ...... 71

3.3 Manufacturing process ...... 78 3.3.1 Manufacturing processes ...... 78 3.3.2 Enterprise resource planning ...... 82

3.4 Summary and conclusions ...... 84

CHAPTER 4 ...... 85

4. SUPPLY CHAIN SYSTEMS IN THE MILITARY DEFENCE INDUSTRY .. 85

4.1 Introduction ...... 85

4.2 South African defence industry in perspective ...... 86 4.2.1 Summary of the SA defence industry history ...... 86

4.3 Global defence industry supply chain framework ...... 87 4.3.1 Summary of the aircraft industry ...... 91

4.4 An overview of Saab Grintek Defence supply chain management...... 96 4.4.1 Saab Grintek Defence background...... 96 4.4.2 SGD supply chain challenges ...... 97 4.4.3 Saab EDS ZA supply chain application ...... 103

4.5 Summary and conclusions ...... 115

CHAPTER 5 ...... 117

5. DATA REPRESENTATION, ANALYSIS AND INTERPRETATION ...... 117

5.1 Introduction ...... 117

5.2 Research methodology ...... 119

5.3 Ethical considerations ...... 124

5.4 Presentation and analysis of data ...... 125 5.4.1 Background information ...... 125 5.4.1.1 Background conclusion ...... 131

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5.4.2 Supply chain planning data analysis: Part A ...... 132 5.4.3 Strategic sourcing: supply chain planning data analysis: Part A ..... 137 5.4.3.1 Supply chain planning conclusion: Part A ...... 142 5.4.4 Manufacturing data analysis: Part B ...... 143 5.4.4.1 Manufacturing planning conclusion: Part B ...... 149 5.4.5 Influence of product design engineering analysis: Part C ...... 150 5.4.5.1 Influence of product design conclusion: Part C...... 155 5.4.6 Improved competitive advantage data analysis: Part D ...... 156 5.4.6.1 Competitive advantages conclusion: Part D ...... 158 5.4.7 Summary descriptive statistics: Parts A, B, C and D ...... 159 5.4.8 Experimental control measure: Part A, B, C and D...... 167 5.4.9 Managerial implications ...... 173 5.4.10 Summary and conclusions ...... 175

CHAPTER 6 ...... 179

6. CONCLUSIONS AND RECOMMENDATIONS ...... 179

6.1 Introduction ...... 179

6.2 Key findings ...... 179 6.2.1 Findings on the strategic perspective ...... 179 6.2.2 Findings on the internal perspective ...... 181 6.2.3 Findings on the external perspective ...... 183

6.3 Recommendations and conclusions ...... 184 6.3.1 Key recommendations ...... 186 6.3.2 Conclusion ...... 190

6.4 Limitations and further research ...... 191

BIBLIOGRAPHY ...... 193

APPENDICES ...... 205

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LIST OF TABLES

Table 1.1: The world’s top 14 defence aerospace companies in 2010...... 31

Table 2.1: Characteristics of the dimension of demand and supply ...... 61

Table 4.1: Sales customer order split by delivery performance: 2011 ...... 103

Table 5.2: Scale index for supply chain planning: Part A internal perspective . 159

Table 5.3: Scale index for strategic sourcing: Part A external perspective ...... 160

Table 5.4: Scale index for manufacturing planning: Part B ...... 162

Table 5.5: Scale index for product design influence on supply chain planning: Part C ...... 165

Table 5.6: Scale index for potential improvement: Part D ...... 167

Table 5.7: ANOVA test for Supply Chain Planning: Part A ...... 169

Table 5.8: ANOVA test for Strategic Outsourcing: Part A external perspective 170

Table 5.9: ANOVA test for Manufacturing Planning: Part B ...... 171

Table 5.10: ANOVA test for Product Design Engineering: Part C ...... 172

Table 5.11: ANOVA test for Supply Chain Improvements: Part D ...... 173

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LIST OF FIGURES

Figure 1.1: How changes in revenue, costs, working capital and physical capital flow into economic profit and shareholder value ...... 19

Figure 1.2: Conceptual model for a virtual supply chain system...... 21

Figure 1.3: Typical fully integrated ERP system ...... 25

Figure 1.4: Demand misalignment ...... 29

Figure 2.1: Evolution of supply chain management ...... 44

Figure 2.2: Supply chain structure ...... 46

Figure 2.3: Era in the evolution of supply chain ...... 47

Figure 2.4: Lean and agile strategies in the source and make phases ...... 51

Figure 2.5: Distribution of journal articles in top six categories ...... 52

Figure 2.6: Framework for supply chain strategies ...... 53

Figure 2.7: Supply chain type versus product type ...... 54

Figure 2.8: Relative severity of direct and indirect relations of supply chain risk 57

Figure 2.9: Scope of supply chain management as currently practised ...... 58

Figure 2.10: Customer order decoupling point in different environments ...... 60

Figure 2.11: Total value chain ...... 64

Figure 3.1: Manufacturing operating cycle ...... 67

Figure 3.2: Evolutionary responses to forces for change ...... 68

Figure 3.3: Manufacturing planning and control system ...... 69

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Figure 3.4: Supply chain planning functions ...... 70

Figure 3.5: Integrated manufacturing system ...... 73

Figure 3.6: Shop floor control system ...... 74

Figure 3.7: MRP record relationships for several parts ...... 77

Figure 3.8: Chronology of major computerised manufacturing applications ...... 79

Figure 3.9: The relationship between market requirements, product characteristics, process choice, and the MPC system design ...... 80

Figure 3.10: Classification of planning environments ...... 81

Figure 3.11: Typical integration of an advanced planning system (APS) and an ERP system ...... 83

Figure 4.1: Comparison of acquisition life cycles through the supply chain ...... 89

Figure 4.2: 2010 R&D expenditures (top 20 R&D companies by value) ...... 93

Figure 4.3: R&D investment by country, 2000–2010 (cumulative)...... 94

Figure 4.4: Number of engineering change proposals 2011 ...... 99

Figure 4.5: Saab Grintek Defence supplier performance ...... 100

Figure 4.6: Production delivery performance ...... 101

Figure 4.7: Customer delivery precision ...... 102

Figure 4.8: Supply chain as practised in SGD ...... 104

Figure 4.10: Project execution process ...... 107

Figure 4.11: SGD manufacturing, planning and control process ...... 112

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Figure 5.1: Respondents by position level ...... 125

Figure 5.3: Length of period of employment at SGD ...... 127

Figure 5.4: SGD respondents by level of education ...... 128

Figure 5.5: Work experience with ERP system ...... 129

Figure 5.6: Respondents’ role in supply chain management ...... 129

Figure 5.7: Respondents’ formal training in SCM by department ...... 130

Figure 5.8: Supply chain planning as an input to strategy formulation ...... 132

Figure 5.9: Interdepartmental collaboration ...... 134

Figure 5.10: Involvement of Production and Procurement in the tendering process ...... 136

Figure 5.11: Key suppliers as an extension to SGD ...... 137

Figure 5.12: SGD sharing sensitive information with key suppliers ...... 139

Figure 5.13: Key suppliers involved in the early stage of product development 140

Figure 5.14: Disconnect between the manufacturing planning and supply chain planning ...... 143

Figure 5.15: Direct link between manufacturing planning outcomes and supply chain management ...... 145

Figure 5.16: Manufacturing planning is done well at SGD ...... 146

Figure 5.17: MRP not designed to adequately support engineering changes .. 147

Figure 5.18: Engineering orders impact on excess stock implications ...... 150

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Figure 5.19: Product design seeks to minimise unique parts ...... 152

Figure 5.20: SGD conduct thorough production readiness reviews ...... 154

Figure 5.21: Excess stock reduction ...... 156

Figure 5.22: Delivery performance improvement ...... 156

Figure 5.23: Forecast accuracy improvement ...... 156

Figure 5.24: Lead Time reduction ...... 156

Appendices

APPENDIX A: Saab Business Process ...... 205

APPENDIX B: Supply chain pyramid ...... 206

APPENDIX C: Proposed Integrated supply chain management and planning phases ...... 207

APPENDIX D: Proposed integrated supply chain organisation ...... 208

APPENDIX E: Typical components of ERP data ...... 209

APPENDIX F: IDAS (Integrated Defense Suite) ...... 210

APPENDIX G: Class 1 Suppliers by performance ranking order in 2011 ...... 211

APPENDIX H: Class 2 Suppliers by performance ranking order in 2011 ...... 213

APPENDIX I: Relationship of Manufacturing Readiness Level (MRL) and Technology Readiness Levels (TRL) ...... 215

APPENDIX J: Typical Production Readiness Review Process...... 216

APPENDIX K: Questionnaire cover letter ...... 217

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LIST OF ABBREVIATIONS Abbreviation Full word

ATO Assemble-to-order

B2B Business-to-business

B2C Business-to-consumer

BOM Bill of materials

BPR Business process reengineering

CIM Computer integrated manufacturing

CRM Customer relations management

EAI Enterprise application integration

EBS Enterprise business system

EDI Electronic data interchange

ERP Enterprise resource planning

ETO Engineering-to-order

FMS Flexible manufacturing system

ILS Integrated logistics support

ISS In-service support

JIS Just in sequence

JIT Just in time

LRU Line replaceable unit

MES Manufacturing execution system

MPC Manufacturing planning and control

MRP Materials requirements planning

MRPII Manufacturing resource planning

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MTO Make-to-order

MTS Make-to-stock

PCB Printed circuit board

PDM Product data management

PRR Production readiness review

R&D Research and development

SaaS Software as a service

SCM Supply chain management

S&OP Sales and operations planning

SRU Shop replaceable unit

TOC Theory of constraints

TQM Total quality management

WCM World class manufacturing

XML Extensible Markup Language

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CHAPTER 1

1. INTRODUCTION AND ORIENTATION

This chapter briefly outlines the study by contextualising supply chain management and manufacturing planning, and then leads directly to the problem identified. Both the purpose and the research methodology used are outlined in this section. Definitions and explanations of concepts that will be used throughout the study are given. Accordingly, the groundwork for what will follow in the subsequent chapters of this study is laid.

1.1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT AND ITS BENEFITS

1.1.1 Supply chain management

In their study, Cooper, Lambert and Pagh (1997) give impetus to the recognition of how critical the supply chain is to the success of the overall organisation. The need for the integrated business operations approach goes beyond just business logistics. Ideally, this should involve all aspects of the business operations from marketing concept, research and development through to manufacturing, logistics for respective capabilities and also finance for funding (Cooper et al., 1997:7).

According to Lamming (1996:185), “supply management concept is a theory grounded in the field of logistics. This theory was introduced in 1984 by Houlihan. Its development was initially along the lines of physical distribution and transport”. Houlihan (1984:101) concedes that … supply chain management differs significantly from the classic material and manufacturing control in four respects. Firstly, it views the supply chain as a single entity rather than relegating fragmented responsibility for various segments in the supply chain to function areas such as purchasing, manufacturing, distribution, and sales. Secondly, the distinctive feature of supply chain flows directly from the first: it calls for – and in the end, depends upon – strategic decision making. “Supply” is a shared objective of

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practically every function of the chain and is of particular strategic significance because of its impact on overall costs and market share. Thirdly, supply chain management provides a different perspective on inventories, which are used as a balancing mechanism of last, not first, resort. Lastly, supply chain management requires a new approach to systems: Integration, not interface, is the key.

In a similar vein, Belbağ, Çimen, Tarým, and Taþ (2009:487) supported by Chen and Paulraj (2004:133) maintain the same sentiments that “a well-conceived supply management approach combined with a smooth operation of that plan yields more benefits for enterprises”. Coyle, Bardi, and Langley (2003:33), on the other hand, point out that, to meet customer's expectations or even perhaps exceed them is a challenge for manufacturing companies. To manage the whole logistics systems from sourcing to order fulfilment poses a challenge for companies operating within the manufacturing discipline. This can be attributed to a highly competitive marketplace that demands efficiency throughout the supply chain. This includes controlling the means of transporting the stock and other logistics costs: good logistics provides business power.

Ghiani, Laporte and Musmanno (2004:1) explain that … logistics deals with the planning and control of material and related information in organisations, both in the public and private sectors. Broadly, logistics’ mission is to get the right materials to the right place at the right time, while optimizing a given performance measure (e.g. minimizing total operating costs) and satisfying a given set of constraints (e.g. a budget constraint).

In their 2008 sixth annual survey of global supply chain trends, PRTM Management Consultants described that about 300 international participants provided critical insight into how industry leaders are globalizing their supply chain operations to achieve a competitive advantage in today's challenging business environment. While the survey reveals numerous strategies used by companies to manage their supply chains in a global basis, the top two out of the identified ten major trends in a global perspective that are driving innovative supply chain design and configuration across all industries are: (1)

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a large structural shifts to global supply chain is occurring as a resultant of acceleration of globalisation to improve supply chain performance, (2) pressure to reduce costs and derived need to penetrate the local markets (PRTM, 2008:2).

PRTM’s study highlights two important aspects of the supply chain, namely, the strategic location where goods and services are sourced and the derived benefits, mainly in terms of cost benefit.

1.1.2 Supply chain integration

The supply chain philosophy goes beyond just finding the right match and the formula for a business sourcing strategy, manufacturing and distribution. There is more to it than that; in the broader context the supply chain creates value to the market. According to Tang, Teo and Wei (2008:262), who support this statement: The evolution in the implementation of logistics and supply chain management has been rapid in the last few years. As the integration of processes and information between companies continue to improve, companies improve on their ability to collaborate and work on joint company processes in an extended “value chain”. With this increasing; close integration, planning, and execution functions are no longer separate, but become more coordinated. The ability to integrate the planning and execution functions, close to real-time basis, becomes even more critical.

Accordingly, this should be highlighted in the context of the value derived for both the customers and the shareholders. Market forces have an influence on the supply chain structures derived from businesses in order to reduce costs and still deliver on time and in line with high quality standards. Collaboration in bringing value to the customers and shareholders is also taken into account in the entire value chain when bringing the goods and services into being. Slone et al. (2010:4) support this statement, saying that the most neglected pathway in increasing shareholder value runs through the supply chain. This is not a cost-cutting argument, though supply chain excellence often dramatically reduces costs over the long term. In fact, reaching excellence is expensive,

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both in terms of executive attention and actual cash outlay. Supply chain excellence drives shareholder value because it controls the heartbeat of the firm – the fundamental flow of materials and information from suppliers through the firm to its customers.

Kumar (2010:28) warns: In the last two decades, organizations have been focusing on maximizing profit by reducing supply chain inventories and costs. Supply chains have become leaner and more fragile to the extent that a small disruption in any of its component elements such as supplier, manufacturer and customer can break the whole chain. Organizations should be mind-full of the risk involved and therefore try to mitigate them in advance and corporate that in their supply chain strategies.

Figure 1.1 below demonstrates how changes in revenue, costs, working capital and physical capital flow into economic profit and shareholder value.

Figure 1.1: How changes in revenue, costs, working capital and physical capital flow into economic profit and shareholder value Source: Adapted from Slone et al. (2010:8)

Jain, Dangayach, Agarwal, and Banerjee (2010:11) advise that “businesses must research which parts of their supply-chain process are not competitive; understand

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which customer’s needs are not being met, establish improvement goals, and promptly implement necessary improvements”.

All the researchers mentioned above emphasise the important strategic role that supply chain management plays in the global business world. Furthermore, advances in the supply chain are the primary objective of businesses, apart from the need to maximise shareholder value.

According to Slone et al. (2010:7) the “supply chain is the foundation to generate revenue by providing outstanding product availability, controls 60%‒70% of the cost, controls most of the inventory management, and manages most of the physical assets of the firm”.

Collaboration can take the form of outsourcing non-core operations to channel specialists or leveraging complementary partner capabilities to facilitate the creation of new products or speed up delivery to the marketplace (Ross, 2011:3). Ross (2011:2) maintains that, in support of the integrated SCM, in the past, what transpired in other external business operations was of secondary importance to companies in the industry in comparison to then focus on management in effectively managing internal engineering, marketing, sales, manufacturing, distribution and finance activities. Whereas in today’s business environment, no business can expect to develop competitive advantages without integrating and collaborating their strategies with those of the supply chain systems in which they are entangled (Ross, 2011:2).

In figure 1.2 below, Gunasekaran and Ngai (2004:27) describe the logistical and informational elements of the supply chain system, which extends from the demands of the marketplace at one end to the specific product delivery to the customer at the other.

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Information Flow

B2C, B2B, B2G & M

Data collection, information processing and information sharing, internet, intranet and extranet

Plan Source Make Deliver

ulfilled Network e-Procurement, Web-based e-Logistics, f planning, data e-Auction, design, e-Payment,

emands mining, e-Marketplace, MRPII, ERP, EDI, XML d collaborative data mining, JIT, TQM planning, customer emand

and CRM d market relationship intelligence, management demand

Customer forecast, strategic

alliances Customer

Company infrastructure, human resource management, management of technology, procurement, computer skills, bar coding and scanning, warehousing exhibition, fleet utilization system, inventory management system Network of firms

Materials Flow

Figure 1.2: Conceptual model for a virtual supply chain system Source: Adapted from Gunasekaran and Ngai (2004:588)

The Supply Chain Council (2011:26) provides empirical evidence to show that most companies and organisations can realise the following competitive benefits from improved SCM: • improve delivery performance by 16 to 28% • reduce inventory costs by 25 to 60%

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• reduction in order fulfilment cycle time of 30 to 50% • improvement in forecast accuracy of 25 to 80% • increase in overall productivity of 10 of 16% • lower supply chain costs of 25 to 50% • improvement in fill rates of 20 to 30% • improvement in capacity realisation of 10 to 20%

The Supply Chain Council further asserts that, in the future, the competitive landscape will change from individual companies to the best of ‘the’ best supply chains. This means that the focus will shift from a business-to-business supply chain to an integrated holistic view of supply chain networks (Supply Chain Council, 2011:26).

1.2 MANUFACTURING PLANNING SUPPORTED BY SUPPLY CHAIN SYSTEMS

1.2.1 Manufacturing execution approaches

Ghiani et al. (2004:16) assert that “an increasing number of companies operate at the global level in order to take advantage of the lower manufacturing costs or cheap raw materials available in some countries”. This global participation compels companies to be competent in the field of logistics and supply chain management in order to be competitive on the global stage and deal with globalisation forces.

Herrmann (2001:1) acknowledges that superior coordination of manufacturing activities within the supply chain can be aided by sound manufacturing planning schedule to improve productivity and decrease operating costs. In this approach, resource conflicts can be predicted before releasing manufacturing jobs to the production shop-floor, ensuring that required materials are ordered and available on time, determining beforehand whether promises to the customers can be met and also generating a preventative maintenance schedule that will keep the shop-floor downtime to a minimum (Herrmann, 2001:1).

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However, Herrmann (2001:1) also concedes that: Manufacturing facilities are complex, dynamic, stochastic systems. From the beginning of organized manufacturing, workers, supervisors, engineers, and managers have developed many clever and practical methods for controlling production activities. Although dispatching rules, Kanban cards, and other decentralized production control policies are in use, dispatching rules are usually quick but myopic because they typically do not use global information (Herrmann, 2001:1).

McClellan (2003:1) gives direction by stating that the current hot issue in manufacturing is “collaborative manufacturing” and asks pertinent questions in this regard: Is this a hyped overstatement of the simple idea of companies sharing product data information? Is the objective only to share product schedules or can a group of suppliers led by the big gorilla customer truly create improved value (and reduced cost) by working closer together? Will this new world require computer science knowledge, an industrial engineering or manufacturing engineering education, or what? Who will drive these projects ‒ the company president, marketing executive, supply chain management, or manufacturing managers? Is return on investment still part of the justification or are there bigger-picture issues that make collaborative manufacturing simply necessary to do business? The answer to each of these questions depends on each company and how it wants to operate.

Computerised techniques and management methods, such as enterprise resource planning (ERP), business process management (BPM), Six Sigma, and Lean process management, have been extended to the management of the supply chain in an effort to optimise and activate highly scalable manufacturing and distribution functions across a network of supply and delivery partners (Ross, 2011:3).

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1.2.2 Enterprise resource planning (ERP)

Eshlaghi, Asadollahi and Poorebrahimi (2011:16) explains the importance of ERP application as a key development in the construction of company-wide efficient information systems flow in order to integrate business information and satisfy knowledge management requirements. Enterprise Resources Planning and Supply Chain Management (SCM) are fast gaining popularity in the various industries. In today’s information age, the this sector is providing leadership to satisfy the growing need for companies to incorporate applied business planning in their operations. (Eshlaghi, Asadollahi and Poorebrahimi, 2011:16).

Hotãran and Horga (2011:242) put some perspective on this: An ERP system enables decision makers to carry out a comprehensive analysis of the business plan, to achieve better communication in the company, to improve cooperation and interaction between various departments. This is done through the options for simulating activities and through the flexible and dynamic nature of applications, organizations can make plans for forecasting, assessment and for trends in the industry in which the company falls, qualitative analysis, integration with new technologies of e- business and online communication.

Figure 1.3 below illustrates an integrated ERP system for an enterprise, the aim of the ERP system is to make business information be easily reachable to all its business units by integrating information to a single source data that is available to all. Furthermore the ERP system helps to achieve better synchronisation and deployment of resources for decision- making. Therefore the business will operate in a cohesive manner rather than as separate entities with different agendas within the organisation. Although ERP systems are software- based and this software is often very expensive and complex with a long learning curve, optimisation rather than disconnect can be achieved. Therefore to implement an ERP system, an organisation needs to prudently reassess itself, especially its commitment in terms of financial and human resources. (Madu and Kuei, 2004:12).

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Figure 1.3 below illustrates a fully integrated ERP system

Sales & Ops Strategic Planning Enterprise Resource Plan Planning R&D Marketing Product Engineering Manufacturing Resource Demand Management Human Planning (MRPII) Executive Resource s Decision Support Financial Supply Planning Manufacturing Engineering ISO 9000 Forecasting Supply Chain Standard Cost Chain Accounting: Customer Maintenance A/P, A/R, GL Order Entry Enterprise Management Purchasing Full Sales Support Relationship Production Material Customer Management Service Systems Quality Production Requirements Management Planning (MRP) Logistics & Activity Control Distribution Master Advanced Inventory Scheduling Management CRP Field Service Costing Sales &Ops Planning

Advanced Full JIT Manufacturing Support Execution Planning & System Scheduling

Figure 1.3: Typical fully integrated ERP system Source: McClellan (2003:3)

The capability of building and maintaining inter-organisational network relationships is increasingly viewed as key to sustained competitive advantage. The fast development of technology, combined with increased global competition and more stringent customer demands, put strong pressures on companies to improve not only on price, but also a wide variety of product and service attributes. The pressure to do more with less inevitably forces companies to focus on fewer, unique, hard to imitate and distinctive core competencies, while establishing co-operations in fields in which they do not possess distinctive competencies (Omta, Trienekens, & Beers, 2001:1).

To succeed in the digital economy, organisations must manage the integration of business, technology, people and processes, not only within the enterprise but also

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across extended enterprises. Thus, the supply chain management (SCM) system facilitates inter-enterprise cooperation and collaboration with suppliers, customers and business partners. Although this system can bring benefits and competitive advantage to organisations, the management and implementation of this system present organisations with significant challenges. Accordingly, process integration and redesign are important component SCM implementations. Integration involves not only implementing enterprise resource planning (ERP) systems and ensuring they communicate or interface with legacy systems, but also integrating ERP and SCM systems with customer relationship management (CRM) and product lifecycle management (Awad & Nassar, 2010:1).

1.2.3 Manufacturing resource planning (MRPII)

Maskell (1994:12) asserts that “there is no denying that manufacturing resource planning (MRP) has provided enormous benefits to thousands of Western companies. These benefits have manifested themselves in improved customer service, reduced inventories, reduced production costs, and greater flexibility. But the introduction of MRPII has not been as successful as expected”. In a similar vein, Chen, Kao and Chen (2012:4785) assert that MRP adopted by PC assembly industries for logic planning to solve production logistics issues, no longer could respond to customer’s order changes swiftly. Such a situation not only reduced customer’s satisfaction and loyalty, but is also unable to control operating costs effectively, consequently this seriously affected the enterprise’s capability to receive orders.

Similarly, Wight (1974:4) affirms that “computerizing a system that works well manually will seldom generate significant improvement”. This therefore confirms the use of global information within both the internal supply chain and the external supply chain in order to derive the benefits stated by Herrmann (2001:1) ‒ increased productivity and minimised operating costs in a complex, dynamic and random manufacturing environment.

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Toomey (1996:6) describes the evolution of MRP as starting in the 1960s with the “availability of new computers, the storage capacity and speed of the third-generation computers as well as a software concept called the Bill of Material processor, calculating the new requirements of all manufactured and purchased items by time period became practical. This set of techniques became known as MRP – Material Requirements Planning”.

Planning and control in a hybrid production system, such as in the military defence industry, is more complicated than a conventional forward supply chain owing to the uncertainties in the return processes and the difficulties of coordination in the recovery and conventional production processes. Therefore, as a result of multiple supply resources, production planning and control cannot be adequately managed by a conventional business system such as MRP software. A practical question asked in this regard is: Which parts of the production process should be managed in a conventional way, and which should be treated differently? The current literature provides little support on this issue in terms of guiding frameworks (Wikner & Tang, 2008:345).

1.2.4 Inventory management

Ghiani et al. (2004:7) affirm that “the aim of inventory management is to determine stock levels in order to minimise operating costs while satisfying customer service requirements”. They further explain that holding an inventory can be very expensive for a number of reasons. Firstly, a company that keeps stock incurs an opportunity (or capital) cost represented by the return on investment that the firm would have realised if the money had been better invested. Secondly, warehousing costs must be incurred, whether the warehouse is privately owned, leased or public. Ghiani et al. (2004:121) further state that the annual cost of carrying inventory can be 30% or more of the value of the materials kept in stock. It is therefore crucial for companies to manage inventories carefully.

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Barroso, Machado and Cruz Mchado (2010:168) point out that more than half (51%) of the disturbances in production planning can be attributed to the supply chain, because of the reliance on the supplier’s delivery performance. Barroso et al. (2010:167) further point out that, to mitigate the risks of disruptions in the supply of materials, a business should undertake a multi sourcing policy that supports supplier portfolio that is not related to the same sourcing supply chain network to avoid interdependency, thus the suppliers in that portfolio should have unique supply networks. In the recent past, industries have been negatively affected by the interdependency relations between the suppliers and that has negatively impacted on the firms’ inbound and outbound flows of materials (Barroso et al., 2010:167).

Regardless of the technical elegance and strategic capabilities of SCM, what goes on in a supply chain must pass the simple litmus test applied in any process: Do the functions being performed add value to the customers, the companies involved, and the supply chain in general? In other words, do the inventories, policies and procedures, supply and delivery processes, and operating cultures of channel provide rich sources of continuous value? (Ross, 2011:119).

Figure 1.4 below illustrates the demand misalignment within organisations due to miscalculated customer demand. “Demand-driven networks require companies to abandon statistical/forecast driven forms of planning for inventories and fulfilment. The ability to quickly modify plans and alter supply execution is a hallmark of world-class supply chain companies” (Ross, 2011:152).

Figure 1.4 also provides an overview of the impact of supply‒demand misalignment on overall supply chain effectiveness. Ordering cycle 1‒6 in figure 1.4 characterises the demand misalignment in the electronic defence industry despite the fact that the industry generally applies a pull-demand management approach rather than a push-demand management approach. The pull-based system relies on the coordination of production and distribution with actual customer demand, rather than with a potentially error-laden

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forecast of demand. A pull system, on the other hand, is based on lean philosophy, which seeks to develop and redesign production processes to remove overburden (muri), smooth production (mura) and eliminate waste (muda). When using a pull system, the producer only responds to customer demand (Langley, Coyle, Gibson, Novack & Bardi, 2009:546).

Baseline orders 1 True end-customer demand 3 Over Ordering Financial implications

Real Over Supply Unit period per 2 4 shortage

Production

Shelf Life / Redundant / Cancellations 6

Launch 5 End of life date

Financial implications

Figure 1.4: Demand misalignment Source: Adapted from Langley et al. (2009:235)

1.3 STUDY ORIENTATION BACKGROUND

Companies in the military and defence industry are not static and therefore change constantly as the market evolves. In recent years, there has been increased financial pressure on the defence manufacturing organisations that are privately owned and which fund their research and development (R&D) budgets through their revenue streams, as opposed to customer or government-funded projects. Against this background, Neuman (2006:429) explains: The perceived conventional threat diminished with the end of the Cold War, defence budgets were reduced and major weapons programs slowed down in the main arms- producing countries. This affected many countries, Western and non-Western alike, military industrial production was drastically cut and some production lines shut down.

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The total value of arms deliveries worldwide declined by 28 percent between the periods 1997–2000 and 2001–2004. Misra (2011:12) points out that “the USA accounts for nearly 60 percent of global arms production which was around $471 billion during 2008”.

The March 2010 edition of the Defence Standardization Progress Journal, edited by Koczanski, affirms that “the economic crisis has made it more difficult for manufacturers to get the capital necessary to expand their existing businesses; much less start new businesses”.

South African military defence companies are not insulated from the market evolution globally, according to Dunne & Haines (2002:7), Denel continues to dominate (48% market share) most of the seven key sectors of the domestic defence market, particularly aerospace, ammunition, weapons systems and military vehicles. The other key sectors of the domestic defence market – electronics, maritime and support equipment – are dominated by the three largest private sector defence firms, namely Reunert, Altech and Grintek (Dunne & Haines, 2002:7).

Further, a number of changes have taken place in the sector more generally, and the majority of private-sector turnover in the defence market is now spread over several companies – Saab Grintek, Reutech, ATE, ADS, Land Systems OMC (formerly known as Alvis-OMC) and Tellumat (Barrads & Research Unit of Creamer Media, 2008:8).

The TNO report (2009:9), Organisation for Applied Scientific Research in the Netherlands, states that “the re-structuring in the European region resulted in new names emerging in the top European arms firms, namely, BAE Systems, EADS and Thales, through reflecting mergers and acquisitions”. American companies together with European countries still dominate the defence industry, refer to table 1.1 below.

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Table 1.1: The world’s top 14 defence aerospace companies in 2010.

Source: Flight International Top 100 (2011:33)

This challenge, as described above, means that companies that find themselves in this situation have to find creative ways and means to lower their cost of doing business particularly in operations such as manufacturing. Price Waterhouse Coopers (2005:1) state that “companies in the defence industry are under enormous pressure not just to win work but also to ensure that, when they do get contracts, they deliver on time and on budget – and ensure that what is delivered remains fit for purpose throughout its intended lifetime”. Investment decisions relating to plant, equipment, material and labour are now becoming more and more part of the organisation’s strategic decisions. These decisions are no longer left to the operations management team; the entire executive team now has to decide on the investment in terms of its returns for most of the manufacturing projects (Vestring, Rouse, Reinert & Varma, 2005:1)

Customers are increasingly requesting technology transfers to the country from which the customer originates and to where the product is destined. This means there are few opportunities for long-run production runs within the manufacturing domain. Deloitte (2010:4) supports this statement in its report, which states that “The Indian defence industry has evolved and has been developing capabilities in land, naval and air

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systems. After the introduction of the defence Offset Policy, India is gradually becoming a key outsourcing hub for the global defence industry”.

India is one of the largest military spenders, about USD32.03 billion is earmarked for national defence in 2011‒12 budget, which has been increased from USD 29.62 billion (Deloitte, 2010:4). In November 2009, as part of its defence Offset Policy, India adopted a position to “Buy & Make India” in their defence procurement procedures (Deloitte, 2010:4). According to Ernst & Young (2011:23) India is 20%‒40% cheaper than their counterparts in the United States of America (USA) when it comes to engineering and science skills available. Accordingly, this puts India in a competitive position when competing with the rest of the world in the manufacturing industry.

Among companies of the same business family, collaboration between countries is becoming more and more evident. Moreover, the bond between manufacturing efficiency and supply chain effectiveness is gaining appreciation. Greater dependency and closer collaboration with customers bring with them new levels of responsibility because of the relationships built through joint ventures and partnering so as to protect intellectual property (IP) (Hsieh & Tidd, 2011:5). Halldorsson, Kotzab, Mikkola and Skjoett-Larsen (2007:284) give context to this collaboration by accepting that complexity and diversity into management decisions is greater in such arrangements. Such complex decision includes, relocating business activities and processes, how structural operations should be formed, what should the role and power of participants be. This is all based on the architecture and the premise of the most efficient supply chain collaboration forms amongst all members within the conversion chain between production and consumption (Halldorsson et al., 2007:284).

In this context the value created by companies in the manufacturing sector of the defence industry can be carefully managed through the supply chain system. In a global economy, critical business decisions, such as what is core business, and what can be

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outsourced to derive maximum benefits from the value chain, are crucial from a supply chain perspective.

A company’s ultimate success can be measured in terms of its total market value. Work done by Koller, Goedhart and Wessels (2010:3) affirms this: Companies that have pursued a growth strategy rather than cost-cutting measures have been rewarded handsomely. Companies that maximize value for their shareholders in the long term also create more employment, treat their current and former employees better, give their customers more satisfaction, and shoulder a greater burden of corporate responsibility than more short-sighted rivals.

Morris, Kuratko and Covin (2008:8) maintain that Firms that are more adaptable, flexible, fast, aggressive and innovative are better positioned not only to adjust to dynamic, threatening and complex external environment, but to create change in that environment. Thus, the Supply Chain Management (SCM) system that facilitates inter-enterprise cooperation and collaboration with suppliers, customers, and business partners gives firms an opportunity to address dynamic external environment to stay competitive.

By developing and maintaining an enterprise-wide business continuity programme that includes all internal and external components of the supply chain, companies can prepare to manage risks in order to continue meeting stakeholder expectations when disasters occur, or at least avoid disruptions through planning and preparedness (Kildow, 2011:xvi).

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1.4 PROBLEM STATEMENT

Based on the introduction and background discussed in this chapter, the problem statement for this study was framed as follows:

Manufacturing companies in the military defence industry are faced with challenges in terms of winning business and delivering on time and within budget, while at the same time providing benefits for both customers and shareholders. This pressure is manifested in the poor performance of the supply chain system coupled with the internal manufacturing planning system. Misalignment between the supply chain system and the manufacturing planning approach is therefore evident.

1.5 PURPOSE OF THE STUDY

1.5.1 Primary research objectives

The primary objective of this dissertation is to make suggestions for improving manufacturing delivery performance by realigning the interaction between supply chain management and manufacturing planning.

This dissertation argues that an effective holistic manufacturing planning approach supported by efficient supply chain management which, in turn, is grounded on sound supply chain management principles will improve production delivery performance, thus ensuring long-term success and, ultimately, the survival of the manufacturing companies in the defence electronics industry.

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1.5.2 Secondary research objectives

The secondary objectives of the research study are as follows:

 To assess internal collaboration interfaces within the cross-functional structures of the integrated supply chain system. In terms of this objective, the shortfalls in collaboration will be evaluated and better internal interfaces within the context of internal organisational cooperation and external organisational cooperation will be encouraged.

 To review the challenges of strategic sourcing within the military defence manufacturing organisation. This objective will help to explain the nature, benefits and challenges derived from the organisation’s extent of outsourcing, linking this to manufacturing planning improvement.

1.6 SIGNIFICANCE OF THE RESEARCH STUDY

The importance of this study lies in the fact that it endeavours to improve the elements of manufacturing delivery performance affected by the supply chain system and that influence on-time delivery in a manufacturing environment. The study also explores the application of SCM in order to provide a best fit alignment of the SCM processes that interact with manufacturing planning, from the supply of raw material to order fulfilment, within the defence and military industry.

Ross (2011:1) emphasise: SCM is important because companies have come to recognize that their capacity to continuously reinvent competitive advantage depends less on internal capabilities and more on their ability to look outward to their networks of business partners in search of the resources to assemble the right blend of competencies that partners in search of resources to assemble the right blend of competencies that will resonate with their own organizations and core product and process strategies.

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1.7 SCOPE OF THE RESEARCH CASE STUDY

The study initially focuses on the interaction between supply chain system effectiveness and manufacturing planning effectiveness in support of the latter, based on a literature review. In this regard, the study is focused on the application of the supply management approach that leads to production planning effectiveness. The research then continues by collecting evidence on three aspects of the supply chain management system, namely, supply chain planning, manufacturing planning and product development and design influence. The cross-functional structures, collaborating with supplier and customers, and establishing an agile process of change management will be tested. This is done with the intent to better understand the problem stated above, which is evident in the electronic defence organisation.

The organisational structure is investigated to determine whether this structure supports the application of nana integrated supply chain management approach; moreover, whether it will also be ascertained whether the right talent is present within the organisation. In addition, as the direct impact of available information technology influences the supply chain management approach within the organisation, and the extent of know-how that is currently available to apply the information technology in order to support the supply chain will be assessed. Of particular interest to the study is the ability of SCM to influence manufacturing planning effectiveness during the application of supply chain policies, as well as the way in which the organisation has been structured to support a supply chain collaboration approach.

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1.8 RESEARCH DESIGN AND METHODOLOGY

1.8.1 Research design approach

As part of the empirical evidence gathering, this study makes use of secondary data extracted from the company’s ERP system (Qmuzik). Trend analysis is investigated in terms of the factors that are likely to negatively influence overall on-time delivery performance. This includes performance relating to the supply of raw material, production delivery and delivery of finished goods.

Flowing from the data collected during the investigation and the data extracted from the secondary sources, the primary data will then be collected from the target population using the results and outcomes of the secondary data investigations and the reviewed literature. Quantitative analysis of the data will subsequently be conducted to gain new insight into the problems, and to address the research objectives.

A qualitative research approach can be understood to be “any kind of research that produces findings not arrived at by means of statistical procedures or other means of quantification" (Golafshani, 2003:600). Such research does not allow the researcher to generalise about the findings; hence the results are subject to the focused group study. In order for the researcher to be able generalise and understand the causal factors, a quantitative approach using statistical data is employed to determine and predict trends (Golafshani, 2003:600).

A structured questionnaire was designed to conduct the investigation and to gain a rich understanding of the context of the four organisation’s value chain processes; design, supply, make and deliver within the context of efficient supply chain management principles. All the participants were required to complete this questionnaire. Subsequently, the information was analysed in terms of to what is taking place, how it is taking place and why it is taking place in terms of the interaction between supply chain management and production planning.

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1.8.2 Sample design and decisions

The research design for this study is exploratory in nature. The research focuses on the understanding of the dilemma, with the intention to provide insight and comprehension rather than a collection of details (Babbie & Mouton, 2009:80). This means that, in order to perform a holistic supply chain system analysis related to production planning, detailed research will be conducted on background information for the electronic defence industry organisation.

In line with the quantitative approach, a non-probability sampling technique is used. Secondary data sampling related to the organisation is limited to the year 2011. In order to draw statistics and formulate a trend, analysis is conducted on the challenges highlighted in the quantitative study, such as on-time delivery performance

Respondents to complete the research questionnaire were selected on the basis of their specialist knowledge in the subject field or because they are directly affected by the supply chain system, that is, the part they play in procurement, production, programme office, finance, design, product management, quality, senior management or executive management. The research covers the main four areas of the supply chain ‒ supply chain planning, sourcing, production and delivery.

1.8.3 Data collection

The data collection method used in this study consists of analysing both the data collected from respondents with specialist knowledge responding to a self-administered questionnaire, and the secondary data (data that has already been collected in the organisation). This clearly shows the involvement of numerical data or data that can be quantified in order to obtain a clear picture of the research. The intention then is to gain a rich understanding of the supply chain management application approach within the electronic defence organisation on the basis of with the literature reviewed. In addition the intention is to measure the influence of the interdepartmental collaborative approach,

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strategic sourcing, manufacturing planning and design changes on internal production deliver precision and customer delivery precision.

The questionnaire is divided into four sections: The first section, Part A, is designed to gather information on supply chain planning within the organisation in terms of its strategic position. The second section, Part B, contains questions designed to identify the respondents’ opinions as to the extent to which manufacturing planning is effective within the MRP context. The third section, Part C, is intended to ascertain the significance of the design and the development cycle influencing the supply chain performance. The fourth section, Part D, probes the respondents’ opinions on potential improvements in supply chain performance. The questionnaire is designed so that the target population is able to rate the applicability of 39 statements to their present work situation with responses ranging from not applicable to very applicable.

It is hoped that the results will depict the extent of misalignment between manufacturing planning and supply chain management in a particular organisation, Saab Grintek Defence. The findings are presented in the form of bar charts, tables and graphs which compare the data collected from the participants. Accordingly, data analysis was used to analyse the respondents’ opinions on the interaction between supply chain management and manufacturing planning.

1.8.4 Limitations of the study

The use of self-administered questionnaire as a primary data collection method implies that all the inherent limitations of the structured questionnaire method are also part of the study. The fact that the research may be subjective as regards the choice of questions asked by the researcher may influence respondents’ views to a limited extent.

Furthermore, the decision to include personnel with specialist knowledge of the supply chain in the study limits the theory generated to one particular constituency. Although

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this constituency is deemed knowledgeable in the supply chain field in the organisation, a more diverse and fuller picture of the supply chain performance could have been derived from a wider population within the organisation. The construction of the questionnaire took into account the target population’s knowledge, and diligence is applied on objectivity.

Another limitation would be that the use of secondary data collected from the ERP system, Qmuzik, is limited by the accuracy of data inputs and their extrapolation by the users. Moreover, the decision to limit the study to one organisation prevents the findings of the research from being generalised to other organisations in the industry.

Further research should survey supply chain professionals across the defence industry in South African and this could be extended to international organisations.

1.9 STRUCTURE OF THE STUDY

The layout of the study is as follows:

Chapter 1: Introduction and orientation This chapter introduced the study and discussed the aim, objectives and the context of the research.

Chapter 2: Supply chain management This chapter contains a literature review which examines the supply chain system in a manufacturing environment. The chapter looks particularly at the relationship between the supply chain management system and manufacturing planning within the broader context of the integrated supply chain framework.

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Chapter 3: Manufacturing planning The literature review continues in this chapter by investigating manufacturing planning in a manufacturing environment. This chapter covers the manufacturing planning and control process within an MRP context, the shop-floor control process, and manufacturing strategies and processes. The chapter concludes with an analysis of the impact of misalignment of supply chain planning and manufacturing planning in supply chain management and also considers engineering inputs to planning.

Chapter 4: Analysis of the defence organisation’s manufacturing planning and supply chain approaches This chapter provides an overview of the defence industry in South Africa and in the world with specific reference to the aircraft industry. The chapter further examines the internal relationship between the supply chain management system and manufacturing planning. In addition, the internal effectiveness of supply chain collaboration is described. Finally, the supply chain challenges facing electronic defence organisations are reviewed in general, and an overview of internal and external delivery performance is given.

Chapter 5: Data presentation, analysis and interpretation This chapter presents and interprets the research survey results. Data collected through self-administered questionnaire conducted to address the research questions should be read in conjunction with the other secondary data insights. With regard to the application of the supply chain management concepts, the perceptions and opinions of the respondents are compared with information gleaned from the existing literature. Consequently, new insights are provided and discussed.

Chapter 6: Conclusions and recommendations This chapter presents the conclusions that have been drawn from the study and makes recommendations for future areas that could be researched. Finally, the interpretations of the exploratory results findings are discussed.

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1.10 SUMMARY AND CONCLUSION

In conclusion, the aim of the research study is to improve manufacturing planning effectiveness by understanding the link between supply chain management and manufacturing planning, as well as the various factors that influence on-time delivery performance in an electronics defence organisation. Accordingly it was identified that manufacturing organisations in the electronic defence industry are confronted with the challenge to redefine their supply chain management capability and subsequently align it with internal manufacturing planning approaches.

This research will make a contribution to the military defence organisation by identifying important supply chain management factors that could maximise the benefits derived from efficient supply chain system implementation coupled with improved manufacturing planning. This may result in added value for both shareholders and customers. The alignment of a supply chain management approach with a manufacturing planning approach should have the effect of improving delivery performance by 16 to 28%, reducing inventory costs by 25 to 60% and also lowering overall supply chain costs by 25 to 50% (Supply Chain Council, 2011:26).

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CHAPTER 2

2. SUPPLY CHAIN MANAGEMENT

2.1 INTRODUCTION

This chapter presents a literature review of the nature and scope of integrated supply chain systems and production planning. This literature review examines the work previously published by scholars in the field pertaining to this investigation. This chapter examines the relationship between supply chain management and manufacturing planning in an integrated supply chain context. This chapter concludes by evaluating the benefits of an integrated supply chain for manufacturing organisations.

2.2 OVERVIEW OF INTEGRATED SUPPLY CHAIN SYSTEM

2.2.1 Supply chain system

Langley et al. (2009:14) reflect that the evolution of supply chain management … represents the third phase of an evolution that started in the 1960s with the development of the physical distribution concept that focused on the outbound side of a firm’s logistics system. The focus was on total systems cost and analysing trade-off scenarios to arrive at the best or lowest system cost. The initial focus on distribution or outbound logistics was logical since finished goods were usually higher in value, which meant that inventory, warehousing materials-handling, and packaging costs were relatively higher than their raw material inputs. Logistics in the 1980s, in its simplest form, added inbound logistics to the outbound logistics of physical distribution. The underlying logic of the systems or total cost concept was also the rationale for logistics management. Supply chain management came into vogue during the 1990s and continues to be the focal point for making organizations more competitive in the global marketplace.

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In figure 2.1 below, Ballou (2006:379‒380) demonstrates the evolution of the supply chain from fragmentation in the 1960s, evolving integration in the 1990s, to supply chain management in the 2000s.

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000 +

Demand forecasting

Purchasing

Requirements planning

Production planning Materials Management Manufacturing inventory

Warehousing Logistics Material handling

Packaging Supply Chain Management Finished goods inventory Physical Distribution planning Distribution

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/Sales Finance

Figure 2.1: Evolution of supply chain management Source: Adapted from Ballou (2006:379)

Logistic overview is explained by Van Weele (2010:6) as the following: Inbound logistics – these activities are related to receiving, storing and disseminating inputs to the production process, such as inbound transportation, incoming inspection, materials handling, warehousing, inventory control, and reverse logistics. Operations – activities associated with transforming inputs into the final product, such as machining, assembly, packaging, equipment maintenance, testing, printing and facility operations.

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Outbound logistics – these are activities associated with collecting, storing, and physically distributing the final product to customers, such as finished goods warehousing, materials handling, outbound transportation, order processing and scheduling. Marketing and sales – these activities relate to advertising, promotion, sales, distribution channel selection, the management of channel relations and pricing. Services – activities associated with providing services to customers to enhance or maintain the value of the product, such as installation, repair and maintenance, training, parts supply and product adjustment.

2.2.2 Integrated supply chain

The integration of supply chain processes through investment in cooperative arrangements and technologies is difficult to separate from, or consider independently of, the strategic positioning of organisations. Effective supply chain integration requires effective implementation, and implementation uninformed by strategy will at best produce little in the way of tangible benefits for the parties involved, and at worst be counterproductive and erode competitive advantage (Power, 2005:253).

Today, a company's ability to look outward to its channel alliances to gain access to sources of unique competencies, physical resources and marketplace value is considered a critical requirement. Once a backwater of business management, creating “chains" of business partners, has become one of today's most powerful strategies (Ross, 2011:3).

Awad and Nassar (2010:1) assert that companies are examining new business strategies that can improve further their competiveness in various business areas, such as manufacturing processes, cost reduction, on time delivery. Some of the strategies that helps organisations to achieve competitive advantage are; Just in time (JIT), Supply Chain Management (SCM), Theory of Constrain (TOC) and Total Quality Management (TQM). Companies also realised the importance of information technology to improve competitiveness, instead of automating old, inefficient processes, companies began to

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reengineer business processes using technology as an enabler (Awad and Nassar (2010:1).

According to Omta et al. (2001:3) and Simatupang, Wright and Sridharan (2004:2), supply chain management aims at the integration of business planning and balancing supply and demand across the entire supply chain. It tries to bring suppliers and customers together in one concurrent business process, while spanning the entire chain from the initial source to the ultimate customer, as illustrated in figure 2.2 below.

Figure 2.2: Supply chain structure Source: Adapted from Da Costa Dalé (2011:28)

However, the process of integration is not a simple one; the integration of supply chain activities requires dyadic involvement, that is, consistent involvement of both the buyer and the supplier, and investing in socialisation which is critical to integration success. Socialisation implies the level of interaction and communication between various actors within and between the firms (Breite & Maenpaa, 2011:3).

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Zailani and Rajagobal (2005:379) argue that Information is increasingly available through modern means of technology, i.e. customer relationship management (CRM), e-business, and supply chain management (SCM) solutions, which increases the possibility of serving customer individually with customized bundles of goods and service. However, overly focused customization would ruin efficiency. On the other hand, too rigid an approach to SCM would risk customer satisfaction. Therefore, there needs to be a balance between good customer satisfaction and supply chain efficiency. Jain et al. (2010:12) describe different eras in the evolution of supply chain in figure 2.3.

Figure 2.3: Era in the evolution of supply chain Source: Adapted from Jain et al. (2010:12)

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In the new economy, the focus has been on: (i) building on core strengths; (ii) provision of real-time information; (iii) globalising service demand; (iv) visibility of key performance indicators; (v) collaborative supply-chain operation; and (vi) e-Commerce (Gunasekaran & Ngai, 2004:586).

2.3 SUPPLY CHAIN PLANNING

2.3.1 Management outlook

Awad and Nassar (2010:2) state that “supply chain management (SCM) executives face unique challenges, with respect to integrating supply chain specific strategies with the overall corporate business strategy”. These claims are echoed by Langley et al. (2009:7), who maintain that “the dynamic of the global environment changed dramatically during 1990s and organizations had to adapt to these changes or ‘die’”. Langley et al. (2009:7) continue by describing the contributing drivers of these changes as “globalization, technology, organizational consolidation, empowered consumer and government policies and regulation. The impact of these factors varies from sector to sector, but they are all important”. All of these stated factors are important to assess against individual organisation.

Against this backdrop, Awad and Nassar (2010:2) explain that “in recent years given changing business realities related to globalization, the supply chain has moved up on the chief executive officer’s (CEO’s) list of priorities. But it's not always for the right reasons. In many cases, CEOs only pay attention to the supply chain when they want to cut costs or when something is wrong. Since the supply chain essentially moves the lifeblood of the organization, process efficiency on a global scale is essential to optimized business operations”.

Right alignment can be assured between the strategy design and execution of the company’s competitive strategy. This can be achieved if companies recognise the importance of interrelationships amongst supply chain functional areas such as, planning, sourcing, manufacturing, delivery and the need to quickly react to global

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market changes. The integrated supply chain approach can provide benefits and can no longer be ignored Zailani and Rajagopal (2005:390).

There has been a growing need in the past 20 years to focus on the supply chain to respond to several critical business needs. The initial involvement of the supply chain has been concentrating on the supplier and customer channels as a source of cost reduction and process improvement. For companies to achieve true agility and speed across their networks of supply and delivery partners, integrated approach of supply chain linked to computerised techniques and management methods, such as enterprise resource planning (ERP), business prone management (PBM), Six-Sigma, and Lean process management should ‘take centre stage’. The goal is to eliminate waste throughout the networks while providing superior quality and service to the customers (Ross, 2011:3).

Furthermore, business managers have a challenge to achieve an integrated supply chain, thus to ensure that all functions and activities in the supply chain are working in a synchronised manner. In order to achieve this, suppliers, distributors, and customers must buy into this approach to work in a cohesive process. Although this is a dynamic process, manufacturers, suppliers, transporters, warehouses, retailers and customers are all committed to a constant flow of information, products and funds. Because of the positive results this approach provides, suppliers and distributors that were competitors, now nurture relations to become partners for greater benefit of all involved. For management to be effective on this, they must take into account harmonising all the various parts of the chain as rapidly as possible while keeping the costs down and without negatively affecting quality or customer satisfaction. Effective management of products and information flow is clearly a significant aspect of SCM (Kushwaha, 2012:222).

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2.3.2 Supply chain strategies: structure follows strategy

Ambe and Badenhorst-Weiss (2011:13388) state that “the root cause of the problems plaguing many supply chains is a mismatch between the supply chain strategy and the business strategy”. These authors explain further that it is necessary for managers to take strategic decisions and to develop competitive supply chain strategies with capabilities that add value in the eyes of the customer.

Mishra (2010:43) acknowledges that “customer oriented companies need to build leading edge supply chain management system and address important areas as follows:

Understanding customer service need Structure and operating policies

i. Which customer-servicing elements are i. How many distribution centres should a important to the customer? company have? Where should the location be?

ii. What performance levels are acceptable? ii. What are the costs and customer service implications of supply chain network design?

iii. What value added capability can give the iii. What types of supply chain network company a distinctive edge? configuration make the best strategic sense: Hence Integrated supply chain management requires careful design of three elements. They are organization structure, customer need and culture of each company.”

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According to Kohlberger, Angelhardt-Nowitzki and Gerschberger (2012:20), The term “supply chain strategy” is heterogeneously defined in literature. Supply chain (SC) strategy describes in which areas a company wants to succeed with the SC and how it supports the achievement of the company’s goals. Following SC strategy influences the nature of SC activities, the efficiency and effectiveness of the SC, and relationships with other members within the entire SC. The main components of a SC strategy are; the operations; channels; outsourcing; customer service strategy and asset network. Key dimensions are: sourcing strategy; demand flow strategy; customer service strategy and supply chain integration strategy. SC determines the material flow; cross- company transportation; production; distribution and outsourcing decisions.

Figure 2.4 illustrates the case for aligning the company strategy with the nature of the product and its characteristics.

Figure 2.4: Lean and agile strategies in the source and make phases Source: Adapted from Kohlberger et al. (2012:34)

Ambe and Badenhorst-Weiss (2011:13391), supported by other scholars, explain that “supply chain strategy should be chosen based on the nature of the product and by matching the strategy to the unique characteristics of different products or markets”, as illustrated in figure 2.4 above.

Zhou, Xie, Wild and Hunt (2008:2538) describe the production, type and control depicted in figure 2.4 above. However, in their simulation model they place importance

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on alignment with strategy; they state that “in most cases, the production unit unconsciously adopts a push strategy instead of an expected pull strategy. Therefore, an order backlog builds which results in financial penalties, increasing costs due to higher inventory levels and capacity breaking”. Zhou et al. (2008) also explain that this situation can nevertheless be alleviated after the appropriate supply chain strategy has reacted to an over-stocked inventory. Accordingly, by adjusting SC production strategy throughout the lead time, the appropriate production unit choice corrects the situation.

In figure 2.5 below, Jain et al. (2010:19) provide empirical evidence that, SCM strategy received the most attention of recent growth in supply chain management papers. Out of 588 selected journal articles reviewed in their study over an 18 year period (1991‒2008), the supply chain strategy articles represented 127 of those appearing during the survey period. The second largest area of interest was SCM frameworks, trends and challenges with 101 papers and the third largest (83 papers) being alliances/relations. While SCM has, in some form or another, existed for several decades, the true value of SCM to the organization’s growth and profitability targets has been realized only recently with the emergence of global supply chains and information technology advances. The development and mechanics of supply chains have become very complex.

Distribution of articles in top six categories 140

120

100 Supply Chain Strategy

SCM framework, Challenges and Trends 80 Alliances/Relations 60 World Wide Web and E Commerce No. of people of No. 40 Time Based Strategy Cpmputer Application and EDI 20

0 Category

Figure 2.5: Distribution of journal articles in top six categories Source: Adapted from Jain et al. (2010:19)

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Ambe and Badenhorst-Weiss (2011:13395) describe the stages that firms can follow in choosing the right supply chain strategy (see fig. 2.6).

SUPPLY CHAIN STRATEGY

Step 1: Understand the Functional market and the Innovative (predictable products) customer demand (unpredictable products)

• Market winner: low • Market winner: high cost Step 2: Determine the service levels • Product life cycle: long core competencies • Product life cycle: • Few market segments and capabilities of the short company • Multiple market segments

Efficiency Step 3: Choose the Responsiveness Decision drivers: strategy applicable Decision drivers: Product centralised with Product decentralised little excess capacity; with excess capacity; reduced inventory levels; high level of inventory; few locations with many locations centralised activities; physically close to slow and cheaper The right supply customers; fast and transportation mode; chain strategy flexible transportation cost of information drops mode; collect and share while other cost rise. timely, accurate data.

Leagile supply chain Lean supply chain Agile supply chain strategy (possess strategy strategy characteristics of lean and agile supply chain

strategies

Figure 2.6: Framework for supply chain strategies Source: Adapted from Ambe and Badenhorst-Weiss (2011:13395)

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Literature reviewed recognises that choosing an integrated supply chain approach is not enough for successful operations, but furthermore there should be a match between supply chain type and product type of the enterprise. Supply chain type can be characterised as efficient supply chain or responsive supply chain type, this dependent on the characteristics of the competitive environment the organisation is operating under. On the other hand, product type can be divided into functional product type or innovative product type (Mohdzain, White and Ward, 2012:2).

If an organisation chooses to compete in the low margin and a predictable demand business environment, efficient supply chain strategy is recommended for this type of business operations. On the other hand, if an organisation competes in the high margin and faster product life cycle, fast changing demands and innovative product environment, responsive supply chain strategy is suitable for the type of business operations. Being efficient means the business will operate with low cost as possible, but being responsive means that the business will attract extra operating costs, but the revenue gained due to higher margins compensates for the extra costs. Incurred cost can be attributed to high inventory build-up to meet customer’s needs. A challenge arises when there is a mismatch between the type of chosen supply chain strategy and type of product as illustrated in figure 2.7 below (Mohdzain, White and Ward, 2012:2).

Product Type

Functional Innovative

Match Mismatch Efficient

Mismatch Match Supply Chain Type Chain Supply Responsive

Figure 2.7: Supply chain type versus product type Source: Adapted from Karlgaard (1998:ch 6)

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2.3.3 Strategic sourcing

In the twenty-first century, companies have all but abandoned strategies based on the vertical integration of resources. On the one side, businesses have continued to divest themselves of functions that were either not profitable or in which they had weak competencies. On the other side, companies have found that by closely collaborating with their supply chain partners, new avenues for competitive advantage can be uncovered. Achieving these advantages can only occur when the entire supply chain works seamlessly to leverage complementary competencies. Collaboration can take the form of outsourcing noncore operations to channel specialists or leveraging complementary partner capabilities to facilitate the creation of new products or speedy delivery to the marketplace (Ross, 2011:3).

Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain, such as retailer, distributors, manufacturers, and parts and material suppliers, whereas horizontal collaboration refers to a relationship that is buyer to buyer and seller to seller and in some cases even between competitors. Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. Horizontal collaboration can help find and eliminate hidden costs in the supply chain that everyone pays for by allowing joint product design, sourcing, manufacturing, and logistics. Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Only with full collaboration do dramatic efficiency gains begin to occur. Such full collaboration is intended to accrue benefits to all members of the collaboration (Langley et al. 2009:116).

McClellan (2003:2) acknowledges that: The competitive ability and the broad sense of customer service can be greatly improved when specific business process information is shared with extended enterprise partners more effectively. Collaborative manufacturing is a grouping of ideas and processes designed to greatly enhance the effectiveness of the extended enterprise. One analogy is

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to think of a large, philharmonic orchestra. If each orchestra member worked from his or her individually selected sheet of music the result would be cacophony. Each member working from the identical sheet of music and led by a good conductor can produce real harmony. Collaborative manufacturing is a process of fine tuning for each member and each process of the extended enterprise to obtain greatest harmony and as a group, the greatest competitive position.

In the past, the business continuity planning often disregarded incidents that impacted on the supply chain activities. In today’s vulnerable supply chain, there is an increasing awareness that any disaster that negatively impacts the supply chain is a disaster for the entire company. This highlights the importance of including the supply chain in developing a risk management plan for business continuity. Thus connecting supply chain to risk management, disaster recovery and emergency management for the organisation. Most importantly to be aware of this prior to choosing strategic partners and also evaluate this risk element in the process of sourcing goods and services (Kildow, 2011: xvii).

Over time, it has been demonstrated that companies that were affected by supply chain risks suffered from poor supply chain performance. Therefore business managers are now concerned about the detrimental effects of supply chain risks. Their concerns include product availability to customers, on time delivery, and adequate stock and adequate capacity to deliver in a responsive manner as per customer’s expectations, at all times (Wagner and Neshat, 2010:1).

A study conducted by ZandHessami and Savoji (2011:71) concluded the following: The risks specified in their orderly priorities are considered as follows: environmental, financial, strategic, informative and communicative technology, technology equipment, human resources and supply chain risks. … the most influential and important risk is regarded as an environmental risk. Environmental insecure and competition severity of organizations and managers have confronted them with several challenges which in this regard has placed the environmental risk in the first priority.

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Figure 2.8 above illustrates the areas that companies may consider when evaluating their supply chain risk (ZandHessami & Savoji, 2011:70). Supply chain risk evaluation can protect business resources and the trademarks of the organisation against basic and important meaning of supply chain defeat (ZandHessami & Savoji, 2011:63).

Figure 2.8: Relative severity of direct and indirect relations of supply chain risk Source: Adapted from ZandHessami and Savoji (2011:70)

Ballou (2006:381) argues that … although there is much talk about the benefits of collaboration among channel members and expanding the scope of product flow management to include the entire supply chain channel, to what extent is the theoretical scope of supply chain management actually practiced? In reality few firms reach the potential of theoretical integration. About 47% of the firms are working toward integration within the walls of their own firms. Whether this inter-function integration is attributed to the implementation of large software systems such as SAP rather than to actual collaboration and compromise is not clear. Approximate 34% of the firms focus their integration efforts on purchasing and first-tier suppliers. Beyond that, there is little attempt at integration. This is probably due to the inherent difficulties of achieving effective collaboration and to the limitations brought about by competition, such as to reluctance to share proprietary information.

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Figure 2.9 below depicts the scope of supply chain management as currently practised.

Most companies are working to The create seamless processes within their own four walls. Purchasing Production Marketing (47%) R&D Logistics

Many companies house SCM in Key Suppliers The purchasing & focus on integration with first-tier suppliers. (34%)

Some companies house SCM in marketing & focus on The Key Customers integration with key customers. (11%)

Few companies Key Suppliers The Key Customers systematically integrate up & downstream. (8%)

Supplier Key Suppliers The Key Customers Customers

Collaboration from supplier’ supplier to customer’ customer is a vision not yet

Figure 2.9: Scope of supply chain management as currently practised Source: Adapted from Ballou (2006:381)

To enhance the performance of supply chains, Simatupang and Sridharan (2005:257) assert that “the collaborative supply chain framework should compose of five connecting features of collaboration, namely collaborative performance system, information sharing, decision synchronizations, incentive alignment, and integrated supply chain processes. If these are not aligned with the firm’s expectations, then they need to be adjusted accordingly”.

Van Hoek and Michelle (2006:269) support this argument in their study: “Why focus on external integration in supply chains when companies are not aligned internally? Should we learn how to crawl before learning how to walk? Despite all their best efforts to improve supply chains' contributions to corporate goals, supply chain managers are

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often frustrated about the lack of internal collaboration, understanding and acknowledgement”.

2.4 SUPPLY CHAIN MANAGEMENT

2.4.1 Demand forecasting / management

The purpose of any demand planning process is to anticipate future demands for end products. Demands can be fulfilled through existing stock, work-in-progress, and stock procured from suppliers. The most important supply chain process is demand planning as a source of driving all other aspects of supply chain directly or indirectly towards fulfilling the customer demands, ‘end customer is king’. For a retailer to know ‘what’ to buy and ‘how much’ or a manufacturer to know ‘what’ to build and ‘how much’, the anticipated demands should be predetermined through the forecasting process. This will, as a result of the master plan generated from the demand forecasting, drive needed capacity in the factory and utilisation of resources, raw material needed, and therefore this demand in turn is streamed down to the vendors that must supply raw materials needed (Sehgal, 2009:31).

According to Agus (2011:270), apart from Lean, one of the supply management dimensions is the postponement concept, which involves the process of delaying final product configuration until the actual order requirement is specified by the customer. Thus, keeping products in a semi-finished state would allow for more flexibility and customisation in completing the products and would also enable a company to respond more quickly to market demand.

Jacobs, Berry, Whybark and Vollmann (2011:52) point out that … the focus of demand management in the make-to-stock (MTS) and assemble-to-order (ATO) environments is largely on satisfying customers from the appropriate inventory ‒ finished goods or components. In the make-to-order (MTO) and engineer-to-order (ETO) environments, there is another resource that needs to be taken into account ‒ engineering. Moving the customer order decoupling point of raw materials or even

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suppliers puts independent demand information further into the firm and reduces the scope of dependent demand information. Moreover, the nature of information needed from customers changes.

Figure 2.10 below depicts the decoupling points at which demands change from independent to dependent. This is the point at which the firm – as opposed to the customer – becomes responsible for determining the timing and quantity of material to be purchased, made or finished (Jacobs et al., 2011:48).

Inventory Suppliers Raw Work-in-progress (WIP) Finished location material parts and components goods

Customer

order decoupling point

Engineering Make- Assemble- Make- Environment -to-order to-order to-order to-stock (ETO) (MTO) (ATO) (MTS)

Figure 2.10: Customer order decoupling point in different environments

Source: Adapted from Jacobs et al. (2011:49)

Jacobs et al. (2011:52) further explain that … the need for engineering resources in the engineer-to-order case is somewhat different from that in the make-to-order case. In the make-to-order environment, engineering determines what materials will be required, what steps will be required in manufacturing, and the costs involved. The materials can come from the company's inventory or be purchased from suppliers. In the engineer-to-order environment, more information is needed from customers, although more of the detail design may be left to the engineers than the customer. Because of the need for engineering resources in this

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environment, demand management's forecasting task now includes determining how much engineering activity capacity will be required to meet future customer needs. This may be complicated because some orders can be in progress, even though they aren't completely specified and engineered, so material coordination is important. Therefore coordination of activities along the supply chain is referred to as supply chain management in the context of involvement from customer to supplier. In all environments, suppliers’ capabilities may limit what the firm is able to do; therefore coordination with suppliers is essential.

Table 2.1 below shows the difference between functional and innovative products based on the demand and supply characteristics.

Table 2.1: Characteristics of the dimension of demand and supply

Source: Adapted from Ambe and Badenhorst-Weiss (2011:13393)

Scholars acknowledge that comparatively few companies managed to link demand management with business strategy and in turn, linking the business strategy to supply chain strategy. There is mounting and convincing evidence that understanding and managing market trends is central to defining business success. Table 2.1 above provides a view of how demand data may be used strategically to enhance a company's growth, portfolio, positioning, and investment strategies. As suggested, effective use of demand data can help companies to guide strategic resources in a number of important ways (Langley et al., 2009:235).

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Borade and Bansod (2007:114) acknowledge that the proposed collaborative planning, forecasting and replenishment (CPFR) is a strategy that could overcome barriers through joint planning, joint decision making and the development of a clearer understanding of the supply chain replenishment process in order to achieve some of the promised benefits of actual supply chain integration. One of the most common usages of partnerships is in the provision of transport and distribution services.

In South Africa, the automotive industry is the leading industry in supply chain practices. The industry is often referred to as the barometer of the health of the economy of the country. Yet, many companies within the sector have little knowledge of either the costs involved in maintaining their supply chains or the impact of the supply chain on their operations. Manufacturers and suppliers are challenged to react flexibly to changes in customer demand, thus forcing second-tier manufacturers to hold larger inventory levels of manufacturing because they are directly related to inventory management (Ambe & Badenhorst-Weiss, 2011:13388).

According to Taylor and Fearne (2006:381): A number of operational features of demand management can emerge as problematic across the supply chains, namely: the complexity of procedures for handling demand information, the accuracy, availability and consistency of data, proliferation of forecasts, problems with sharing consumer demand data, timeliness of orders, and disconnect between primary production and final consumption. Generally these are problems in themselves, which addressed, would improve supply chain performance either in terms of increasing responsiveness or reducing cost. However some of these issues in the study were also underlying causes of the misalignment of demand along the chain.

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2.4.2 Material management

Clinton, Manna and Marco (2008:48) assert that “the supply chain management is a key everyday function of manufacturing as it is directly related to inventory management and keeping overall costs to a minimum”.

The procurement function should be able to meet the material requirements related to the inbound and outbound logistics of business activities and, often more importantly, those related to operations. In manufacturing companies operations may have a different structure. These are usually as follows: • make (and distribute) to stock – standard products are manufactured and stocked • make to order ‒ products are manufactured from raw material or the purchased components inventory after a customer order has been received and accepted; applicable to large or customer-specific range • engineering to order ‒ all manufacturing activities from design to assembly, even purchasing of the required materials, are related to a specific customer order. Production is usually done on multipurpose machinery, requiring highly skilled operators (Van Weele, 2010:7).

The rise of globalisation over the last decade has significantly changed the circumstances in which buying firms have to compete. With increasingly global supply chains, the potential sources of uncertainty have multiplied. Today’s purchasing and supply managers face a broad range of security risks. For example, the increase in terrorism as a threat to national security has spawned governmental regulations that impact on almost every aspect of the supply chain. Moreover, changes in these regulations are frequent and vary from country to country. The attacks by Somali pirates on cargo ships off the coast of Africa have elevated the security risk of supply to unprecedented levels (Schoenherr, Modi, Benton, Carters, Choi, Larson, et al., 2011:10).

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As firms begin to reduce the size of their supply base and focus on a few close collaborative relationships, understanding of how firms leverage the supply base's skills, knowledge, expertise and innovation potential is critical. Buying firms today purchase not only products or services from suppliers, but also capabilities that can Iead to competitive advantage; for example involving suppliers in new product development leads to numerous benefits, such as a reduction in cost and development time, an improvement in quality, and the provision of innovative technologies. One emerging challenge for firms is how to obtain innovation from suppliers. This goes above and beyond what current studies have termed ‘early supplier involvement’ in new product development initiatives (Schoenherr et al., 2011:7‒8).

According to the Royal Academy of Engineering (2012:5): It is clear that production is a strategic part of the value chain as illustrated in figure 2.11 below. As the industrial system evolves, so the drivers for capturing value change as well. Already, the manufactured product itself has become an enabler to capturing value rather than the creator of value itself. Business models that create markets for both services to support particular products are becoming more common and, in some cases, significantly more value can be captured from the sale of related services than the product itself”.

Figure 2.11: Total value chain Source: Adapted from Miller (2002:2)

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2.5 SUMMARY AND CONCLUSIONS

This research demonstrates the importance of designing a viable supply chain management system in any manufacturing organisation. Effective demand management acts as a catalyst for the creation of a framework for an enabling environment for business planning, which combines the business strategy, the manufacturing strategy and supply strategy into one business environment.

Demand misalignment is at the root of the problems experienced with order fulfilment and delivery accuracy. This situation manifests in unreliable sales forecasts; these forecasts are at the heart of the inventory management and planning system.

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CHAPTER 3

3. MANUFACTURING PLANNING

3.1 INTRODUCTION

In this chapter the literature on the nature and scope of manufacturing and production planning is reviewed. This literature review examines various works published by scholars on the subject matter pertaining to the investigation and analysis conducted in the current study. This chapter covers the interaction between manufacturing planning and supply chain management in the context of an integrated supply chain framework. This chapter concludes by evaluating the benefits synchronising effective planning in both manufacturing planning and supply chain planning.

3.2 MANUFACTURING PLANNING

3.2.1 Manufacturing planning and control

Manufacturing, planning and control (MPC) is central to an improved holistic approach to managing companies’ manufacturing activities. Figure 3.1 below illustrate three major functional areas that make up the internal supply chain of a manufacturing enterprise; purchasing, manufacturing, and sales and distribution. A more collaborative approach is required between these three functional areas for effective manufacturing planning and control. Procurement activities essentially are responsible to source material with minimise material cost, manufacturing activities are responsible to minimise production costs, and sales activities are responsible to sell the greatest amount and distribution activities are responsible to minimise distribution requirements and warehousing costs (Jacobs et al., 2011:28).

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The sales and operations planning (S&OP) process utilises cross-functional resources, accurate information and expertise in an attempt to synchronise supply with demand in a manner that takes best advantage of the firm's resources and, thus, receive inputs from operations, sales, marketing, finance, and strategic planning (Poirier, 2004:134). Figure 3.1 below illustrate three major functional areas that should be represented in the formation of the sales and operations planning process.

Procurement Manufacturing Sales and cycle cycle distribution cycle

• Purchase cost of material • Raw materials inventory • Distribution inventory • Accounts payable • Work in progress • Accounts receivables • Finished goods inventory

Figure 3.1: Manufacturing operating cycle Source: Adapted from Jacobs et al. (2011:28)

Hill (1989:54) asserts that The principal manufacturing function is to take inputs (materials and labour) and convert them into products. To complete this, a business usually has a range of choices to make between different modes of manufacturing. They usually choose one or, as is often the case, several ways. The fundamental rationale for arriving at this decision, however, must be to ensure that the choice of process is the one best able to support the company competitively in the marketplace.

The choice of manufacturing strategy complements the choice of supply chain strategy as discussed in the literature above.

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In a similar vein, Jacobs et al. (2011:10) conclude that “in response to intense global competition, firms come up with new technologies, products, processes, systems and techniques as new competitive initiatives which in turn often call for changes in manufacturing strategy, manufacturing processes, and MPC systems”. Jacobs et al. (2011:10‒11) further assert that “increasingly, cost and quality are the ante to play the game – winning requires flexibility and responsiveness in dealing with even more fickle customers. The need for evolution in an MPC system implies the need for periodic auditing that compares system response to the marketplace’s requirements”.

Figure 3.2 below shows typical MPC response as MRP and JIT production planning approaches.

Shorter product life cycle Marketplace dictates Time-based competition Technology Company strategy Supply chain partnership Products Quality requirements Processes Systems Manufacturing strategy Flexibility/responsiveness Techniques Reduced overhead costs

Automation Manufacturing Production cells

Simplification

MRP JIT MPC system Cross-company Linkage

Figure 3.2: Evolutionary responses to forces for change Source: Adapted from Jacobs et al. (2011:10)

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As illustrated in figure 3.3, MPC systems involve planning and controlling the manufacturing process (including material, machines, people and suppliers). Both the MPC system and the manufacturing process are designed to meet the dictates of the marketplace and to support the overall company strategy that takes into account the supply chain strategy (Vollman, Berry, & Whybark, 1997:1).

Resource PRODUCTION Demand management PLANNING management

Master production scheduling Strategic

Detailed Detailed capacity material Distribution pPlanning planning (deliver)

Materials and capacity plans Stock

Operations

Vendor Shop-floor systems systems (make) (source)

Execution

Figure 3.3: Manufacturing planning and control system Source: Adapted from Vollman et al. (1997:5)

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MPC systems, manufacturing processes and supply chain strategy can be regarded as the action plans that a firm implements in order to win in business, stay within budget and deliver on time. Thompson, Strickland, and Gamble (2010:14) support this statement by saying that “a company strategy relates broadly to its competitive initiatives and action plans for running the business”. They further assert that to qualify as a winner, a strategy has to be well matched to industry and competitive conditions, a company’s best market opportunities, and other aspects of the enterprise’s external environment (i.e. external supply chain). At the same time, it has to be tailored to the company’s resource strengths and weaknesses, competencies and competitive capabilities (i.e. the internal supply chain) (Thompson et al., 2010:15).

In a similar vein, Sehgal (2009:17‒18) describes the decision-support processes that assist in longer-term planning and forecasting in the supply chain, help to evaluate possible scenarios and help to select the most optimal for execution (see figure 3.4 below). Most of the planning processes require a clear business strategy, clean data, and a good understanding of the modelling and solution constraints (Sehgal, 2009:18).

Network Demand Supply Logistics design planning planning capacity planning

Transportation Demand Inventory capacity forecasting planning planning

Network Replenishment Transportation design planning procurement and analysis Allocation planning Production Warehouse planning capacity planning

Figure 3.4: Supply chain planning functions Source: Adapted from Sehgal (2009:18)

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As Mousakhani and Garakhani (2011:142) state: An organization reaches World Class Manufacturing (WCM) when it has managed to create its manufacturing abilities and capacities in order to obtain a constant competitive and unique privilege like competitive advantage in cost, quality, goods delivery, elasticity and innovation. WCM organizations continue their operations in such a manner that, they are supported always from the outside environment all the time, they are always searching for optimization of their equipment and manpower.

3.2.2 MRP II

Coyle et al. (2003:251) describe MRP as … a materials requirements planning (MRP) system consists of a set of logically related procedures, decision rules, and records designed to translate a master production schedule into time-phased net inventory requirements and the planned coverage of such requirements for each component item needed to implement this schedule. An MRP system replans net requirements and coverage as a result of changes in the master production schedule, demand, inventory status, or product composition. MRP systems meet their objectives by computing net requirements for each inventory item, time phasing them, and determining their proper coverage.

MRP determines requirements based upon the Master Production Schedule (MPS), the modules offer several ways to help keep the schedule current. For instance, production orders may be scheduled on the basis of current customer orders and/or inventory levels, thus accommodating both make-to-order and make-to-stock procedures. The MPS can also include product forecasts, which may be calculated automatically using data from sales or production history. Despite their simplicity, MRP systems hold great potential for making significant contributions to the quest for productivity (Petroni & Rizzi, 2001:144).

In order to use dependent inventory models effectively, Aghazadeh (2003:258) describes the five variables that must be known:

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1. Master production schedule (MPS). The MPS is basically a diagram of what is to be produced and the time frame in which it will be produced. In doing this, it considers several factors, including financial plans, customer demands, engineering capabilities, labour availability, inventory fluctuations and supplier performance. As the production plan is executed, lower-level plans must be viable in order to support the upper levels. If the plan is unsuccessful, feedback from the upper levels is received and adjustments to the plan are made. 2. Bill of materials (BOM). The BOM is a record of all the components of an item, the parent‒component relationships and the usage quantities derived from engineering and process designs. Inventory items included in the BOM are the finished items, intermediate items, subassemblies and purchased items. Finished items are those which are available to the consumer, while an intermediate item is one that has at least one parent item and one component item. A subassembly is an intermediate item that is assembled from more than one component. A purchased item has no components because it comes from a supplier, but it has one or more parents. 3. Inventory available. In order to use MRP, management must know inventory levels. If the firm has not achieved 99% record accuracy or better, MRP will not function correctly or produce the desired outcomes. 4. Accurate record of outstanding purchase orders. Accuracy is obtained in this area through well-managed inventory and purchasing departments. When an order is placed, the record of that order and the personnel involved must know the accurate scheduled delivery date of that order. 5. Accurate estimate of lead-times. Lead-time is the time necessary to purchase, produce or assemble an item. It may include moving time, set-up time, assembly time and run time. Lead-time measures the amount of time needed to get the item in stock after the placement of the order. If the lead-time is longer than necessary, the item may arrive earlier than needed, thus increasing inventory holding costs. Conversely, if lead-time is too short, backorder costs will increase due to the item not arriving soon enough or the customer may cancel their order altogether.

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According to Ross (2011:222), “the ability to effectively plan, schedule, communicate, and manage the index between enterprise departments necessary to execute the timely acquisition of production inventories and finished goods through MRP is perhaps the most matured recognizable component of today's suite of manufacturing applications”. Classical MRP can be broken down into three separate but integrated functions, as illustrated in Figure 3.5 below.

Ross (2011:223) states: MRP function utilizes item planning data to calculate and provide suggested inventory replenishment actions to meet current demand. MRP's primary mission is to ensure priority control: the timely release and on-going maintenance of open orders to ensure accurate due date completion. Capacity Requirements Planning utilizes the MRP requirements output, converts it into load, and then matches it to available shop work centre capacity. By balancing load and capacity, planners can ensure the feasibility of priority plans arising from MRP. Shop Floor Control refers to: after priority and capacity plans have been validated, shop orders can then be released to manufacturing. Once on the floor, MRP utilizes tools such as order dispatching and input-output control to ensure jobs are being completed on time.

Rough Cut Capacity Planning

Master Business Requirements Shop Floor Production planning Planning Production Schedule

Strategic Tactical Operational Level Level Level

MRP RTM

Figure 3.5: Integrated manufacturing system Adapted from Ip (1998:45)

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Braglia and Petroni (1999:436) state that MRP packages are considered to be tools that enhance the firm’s overall capacity to keep under control the whole logistics system. This includes higher items’ traceability, the possibility of carrying out rescheduling of interventions, the possibility of making adjustments to production planning over time; and the increase in the level of information gathering in warehouses.

Information from MRP requirements planning

Shop Floor Coordination Information

Detailed PRODUCTION Planning

PLANNING IMPLEMENTATION CONTROL DEVICES

Request MATERIAL HANDLING Performance Status Measures

REMOTE MONITORING Data collection

Figure 3.6: Shop floor control system Adapted from Ip (1998:46)

Jacobs et al. (2011:15) describe the detailed material planning function in the MRP process scope as “central to the system in the engine portion within the Manufacturing Planning and Control System (MPC)”. Similarly, this is described by Ip (1998:45) as the tactical level within the Integrated Manufacturing System. Ip (1998:48) further explains that companies using MRP to prepare detailed material plans are taking a time-phased set of master production schedule requirements and producing a time-phased set of component part and raw material requirements. In line with Ip, Vollmann et al. (1997:17)

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assert that at “the heart of the MPC is a universal representation of the status and plans for any single item (part number), whether raw material, component part, or finished good”.

A basic MRP record is depicted in table 3.1 below. Table 3.1: Basic MRP record

PERIOD

1 2 3 4 5

Gross requirements 10 0 40 10

Scheduled receipts 50

Projected available balance 4 54 44 44 4 44

Net requirements 0 0 36

Planned order receipts 50

Planned order releases 50

Lead time = 1 period

Lot size = 50

Source: Adapted from Vollmann et al. (1997:17)

Gaither (1992:463) describes the MRP computer as operating as follows: (1) With the MPS it begins to determine the number of end items needed in each time period. (2) The number of service parts not included in the MPS but deduced from customer orders are included as end items. (3) The MPS and service parts are exploded into gross requirements for all materials by time period into the future by consulting the

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bills of material file. (4) The gross materials requirements are modified by the amount of materials on hand and on order for each period by consulting the inventory status file. The net requirements of each material for each bucket are computed as follows:

Inventory Net Gross Inventory on Safety = - - - allocated to requirements requirements [ hand stock ] other uses

If the net requirements are greater than zero, orders for the material must be placed. (5) The orders are offset to earlier time periods to allow for lead times at each step in the production process and supplier lead times. This procedure results in inventory transactions data (orders released, changes in orders, and so on), which are used to update the inventory status file, the primary output reports, and secondary output reports.

MRP systems have the ability to provide management with a fairly broad range of outputs. Stevenson (1996) describes these outputs as often classified as primary reports, which are the main reports, and secondary report, which are optional reports. Primary reports normally include the following: (1) Planned orders – a schedule indicating the amount and timing of future orders. (2) Orders releases – authorizing the execution of planned orders. (3) Changed to planned orders – including revisions of due dates or order quantities and allocations of orders. Secondary reports normally include the following. (a) Performance-control reports – are used to evaluate system operation. They aid managers by measuring deviations from plans, including missed deliveries and stock-outs, and providing information that is used to assess cost performance. (b) Planning reports – are useful in forecasting future inventory requirements. They include purchase commitments and other data that can be used to assess future material requirements. (c) Exception reports – these call attention to major discrepancies such as late and overdue orders, excessive scrap rates, reporting errors, and requirements for non-existent parts. The wide range of outputs generally permits users to adapt MRP to their particular needs (Stevenson, 1996:637).

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Part A Part B

Service part demand Planned order Planned order 50 pieces in Releases Releases week 6 30 25 25 15 40 25

1 2 3 4 5 6 Part C Gross requirements 45 65 25 75 Lead time = 4 Scheduled receipts 95 91 Order quantity Projected available balance 18 68 68 3 69 69 94 = 100 Planned order releases 100

Gross Gross 100 100 requirements requirements Scheduled Scheduled receipts receipts

Part X Part Y

Figure 3.7: MRP record relationships for several parts Source: Adapted from Vollmann et al. (1997:45)

Vollmann et al. (1997:44) state the following An action required on the part of an MRP planner may have been caused by a very complex set of database transactions involving several levels in the bill of materials. As an example, consider the MRP records shown in Figure [3.7 above], which include three levels in the product structure. Part C is used as a component in both parts A and B as well as being sold as a service part. Part C, in turn, is made from parts X and Y. The arrows in Figure [3.7 above] depict the pegging data. Suppose a transaction requiring 75 additional units of part B in week 5 was processed; this would result in an immediate release of an order for 100 units of part C. This might necessitate rescheduling for parts

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X and Y. The point here is that actions required on the part of an MRP planner can occur because of a complex set of database transactions involving many different parts. They may not necessarily directly involve the particular part being given attention by the MRP planner.

3.3 MANUFACTURING PROCESS

3.3.1 Manufacturing processes

To meet the increasing demands of high-quality and technological goods from sophisticated local and overseas markets, manufacturing companies must continually improve their efforts in technology and quality operations. SCM provides a vision that focuses everyone in an organisation on product, production and quality improvements. The pursuit of these improvements is not only requested by the market but also driven by the need to survive (Agus, 2011:274).

Ross (2011:224) argues that the … continuous search for new manufacturing philosophies and methods to automate shop floor control and optimize scheduling and integrate it more closely with demand planning has been at the core of today's systems approach to manufacturing. Fundamental to achieving shop floor management goals is the ability to track production in real-time. For over a decade, manufacturing execution system (MES) has attempted to fill in this gap in shop floor management. According to MESA International, a trade association of MES vendors, MES can be defined as a group of applications encompassing order dispatching, operations and detailed scheduling, WIP tracking, labour machine positing, maintenance, quality management, and document control. The prime function of MES is the control and coordination of work cell and equipment controllers to optimize plant efficiency. Unfortunately, the implementation of systems and their integration with EBS backbones and shop devices such as PICs has been slow in coming. Much of the problem resides in the dynamic nature of MES systems, which makes it difficult to integrate them into MRP and supply chain systems as part of a comprehensive manufacturing model”.

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Figure 3.8 below depicts the major eras of computerised manufacturing applications.

1950s & 1970s 1980s 1990s 2000-2010 1960s

CIM Internet MES JIT CRM APS, EDI SCP

MRP MRPII BPR CMM FMS SCM Cloud computing TQM OPT B2B/B Robotics PDM 2C

SaaS Theory of Reorder MRP I ERP EAI point constraint

Figure 3.8: Chronology of major computerised manufacturing applications Source: Adapted from Ross (2011:220)

The prime function of manufacturing is to convert inputs such as raw material and labour into products. It is important for business to choose appropriate modes of manufacturing that will complement chosen supply chain strategy. The choice of manufacturing process should also complement the design of manufacturing planning and control system that will best support the organisation’s competitiveness in the marketplace as illustrated in figure 3.9 below. The product characteristics is a driver as it is often the case, each choice of process will bring with it certain implications for the business in terms of response to the markets, manufacturing competencies and characteristics. This decision brings along the type and level of investment required, derived unit cost involved, the type of applicable control and style of managing business operations (Hill, 1989:54).

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Figure 3.9 below illustrate the relationship between the market requirements, product characteristics, process choice, and manufacturing planning and control system design.

Market requirements

Product characteristics

Process MPC system choice design

Figure 3.9: The relationship between market requirements, product characteristics, process choice, and the MPC system design Source: Adapted from Olhager and Rudberg (2002:2336)

Figure 3.9 above provides a framework in which organisation can use to classify planning methods required by the organisation. Suitable manufacturing planning and control method depends on the market demand, product type and manufacturing characteristics. A planning method or manufacturing philosophy that works in one situation can be a completely wrong methodology in another status quo. MRP system uses computerised system and is more appropriate for products with complying product structure, needs depended demand, long lead times and uneven demand. Whereas re- order point requires even demands and is fairly possible to use without computerised support. Both methods are used to plan when and how much to order individual articles (Jansson and Mattsson, 2003:872).

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Figure 3.10 below illustrates the different choices of manufacturing processes.

Figure 3.10: Classification of planning environments Source: Adapted from Jansson and Mattsson (2003:887)

Ross (2011:22) describes the classical manufacturing processes as follows: (1) Project: products produced in a project environment are unique and one of a kind, matched to an individual’s customer requirements. This process produces a wide range of custom products very high in cost and price. (2) Jobbing: jobbers are normally focused on the processing of a range of product models characterised by complex, often non- repeated configurations of features and options. These products tend to be low in volume while high in cost and price. (3) Batch: batch production consists of processing products in large lot sizes. While a range of products is offered, economies of scale conversion usually lead producers to offer several basic models with a limited variety of features. Batch production enables producers to migrate from job shop to a flow pattern where lot sizes of a desired model proceed irregularly through a series of processing points or even possibly a low volume assemble line. (4) Line: in a line environment a limited number of products with no or an extremely limited number of features are produced. Line production is often characterized by connected, mechanized processes, such as moving assembly line. Key attributes of this process model are volume manufacturing, delivery, and concern with cost. Product design and quality are determined before the

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sale occurs. (5) Continuous: producers utilising this method sells a very narrow range of highly standardized, commodity products produced in high volumes utilising dedicated equipment. Price and low cost are the key determining factors for this type of production.

3.3.2 Enterprise resource planning

Yu (2005:115) describes the origins of Enterprise Resource Planning (ERP): [It] evolved from material requirements planning (MRP) and manufacturing resource planning (MRP II), as attempts to meet the practical needs of industry and was named by the Gartner Group of Stamford, Connecticut, USA, in 1990. Yu further explains that the Siemens company cooperated with SAP, a German based software company, was first to implement an enterprise-wide ERP system in 1987. Later, Dow Chemical Company implemented its own ERP system designed to enable the complete globalization of business operations in 1988. Since then, the ERP market has expanded worldwide reaching in excess of about $70 billion.

The research concerning the information technology in the late 1990s impacted on the financial performance of many enterprises, henceforth there was a new need to broaden new research path that focused on the business value of Enterprise Resource Planning (ERP) systems. ERP systems, once adopted, achieved to integrate business function such as, accounting, sales and marketing, operations, logistics, and human resources. ERP systems enables different business modules to share data since it is built on a single database and therefore shares information timely and faster within the different functional areas of the business (Velcu, 2005:230).

However, Lean philosophy is associated with the elimination of waste, and the MRP, MRPII, and ERP system were based on push concept leading to overproduction and waste. Many a times, it was discovered that forecast generated from these plans were usually wrong projections leading to inventory build-up. Yet, in reality, managing the Lean demand driven approach without the help of the information technology software is very difficult. On the other hand, ERP systems are used to measure and monitor many

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business performance measures such as financial performance (Hines, Found, Griffiths and (Harrison, 2008:83).

As illustrated in figure 3.11 below an ERP system enables decision makers to carry out a comprehensive analysis of the business plan, to achieve better communication in the company and to improve cooperation and interaction between various departments, Using the options for simulating activities and the flexible and dynamic nature of applications, organisations can make plans for forecasting and assessment and for identifying trends in the industry into which the company falls, as well as qualitative analysis, integration with new technologies of e-business and online communication (Hotăran & Horga, 2011:242). Figure 3.11 below illustrates a typical ERP system coupled with an advanced planning system (APS).

Figure 3.11: Typical integration of an advanced planning system (APS) and an ERP system Source: Adapted from Chen et al. (2012:4788)

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3.4 SUMMARY AND CONCLUSIONS

This review has demonstrated the importance of linking manufacturing planning to a supply chain management system in any manufacturing organisation. Accordingly, ERP systems act as a catalyst for creating an enabling environment in which a business planning framework that combines the business strategy, manufacturing strategy and supply strategy into one business environment can be introduced.

In a manufacturing organisation, MRP plays a major role in planning both the capacity and the materials needed to deliver a product on time and within budget as envisaged by the business plan. In supply chain scenarios, where make-to-order (MTO) and engineer-to-order (ETO) environments exist, the decoupling point where dependent demand becomes independent demand involving third-party participation moves even further from the source of supply in the value chain. It is important to note that an environment should be created in which the source of supply, which includes your vendors, is responsive and sensitive to the demands of your customers and shares risk in a collaborative manner. In that way firms no longer ‘buy’ services and products but also ‘buy’ capability as an extension to the organisation ’s own capability to create strategic competitive advantage among competitors.

Business process information can be shared with suppliers so as to enhance the effectiveness of the supply chain, maintain credible time schedules and keep budgets under control. That means that the lead times on the MRP system should be fairly accurate; therefore, firms should strive to improve predictability from the demand management side so that the demand order can be fulfilled as expected by customers. In addition to the predictability of customers’ demands, internal input from engineering should be closely monitored and better planned in order to support the schedule and, consequently, to deliver on time. Engineering effort should therefore be taken into consideration to avoid delays in determining the product baselines, which could in turn delay the making and the sourcing of manufacturing inputs to the final product.

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CHAPTER 4

4. SUPPLY CHAIN SYSTEMS IN THE MILITARY DEFENCE INDUSTRY

4.1 INTRODUCTION

This introduction provides a brief historical overview of the military defence industry in South Africa as well as the global military defence industry. At the start of the 1990s, three years after the fall of the Berlin wall, the world was beginning to look very different. Between 1989 and 1996 defence spending fell by about a third in real terms. Subsequently, the nature of warfare prompted a move away from large arsenals of traditional weapons to new innovative weapon systems promoting rapid deployment and extreme precision. New shared risk and reward agreements, together with strategic alliances ranging from consortia to joint ventures were becoming increasingly popular to reduce the risk associated with major procurement programmes (Price Waterhouse Coopers, 2005:2).

Defence companies have responded to the scaling down of defence spending, by entering into more collaborative agreement, or consolidation of companies and forming partnership across the defence industry. The pursuit of scale, where size matters, plays a critical role sharing the significant investment cost associated with the nonrecurring costs attributable to new defence programmes spend. This in turn, creates pressure in the supply chain where equipment suppliers upstream need to be more agile but cost efficient as well in delivering large scale projects. Companies operating in the first and second tier are seeking opportunities to improve profitability by sourcing equipment from lower cost areas of the world without sacrificing reliability and performance (Price Waterhouse Coopers, 2005:2).

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This chapter will examine the developments in supply chain and manufacturing planning in the international market as well as in equipment manufacturers in the defence industries and therefore focuses on the implications this has for the case study of a local South African firm, focusing on the aircraft industry in particular. The firm’s market segment is split into air, land and naval, and civil and commercial aeronautics. The majority of the sales (more than 70%) is generated from the air market domain.

4.2 SOUTH AFRICAN DEFENCE INDUSTRY IN PERSPECTIVE

4.2.1 Summary of the SA defence industry history

The ending of apartheid was accompanied by a process of demilitarization of the armed forces in South Africa. This was a parallel action stemming from the dawn of democracy in the 1990s leading to the first democratic national elections in 1994. The South African society experienced heavy militarization, in turn heavy investment in the defence budget in the 1970s and 1980s. The advent of democracy saw heavy militarisation being reversed, heavy defence budget cuts followed, conscription for white males was abolished. South Africans saw re-introduction of the civilian control over armed forces and disarmament measures were introduced. These measures also brought about the termination of the South African’s nuclear weapons programme and the stockpiles of anti-personnel mines were destroyed. This resulted in the downsizing of the local defence industry built up during the years of arms embargo by the United Nations and that has led to the decline of the South African international markets. The restructuring saw the decline in the defence budget expenditure. The South African National Defence Force (SANDF), in the recent past, has been allocated a budget spent to purchase weapons systems from the international market and this procurement has been tied-up to an offset obligation which would provide the domestic industry with much needed growth (Dunne and Haine, 2002:4).

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Chapter 15 in the Defence Industry Policy and Strategy document (2012:1, draft) states that South Africa is one of the top 30 economicators in the world, is located in a region that suffers instability, is drawing the attention of major powers keen on securing access to its resources, and is not aligned to any major power. The logic of this situation argues for South Africa to have an effective defence capability, which includes, as an integral element, a defence industry to support the Defence Force, granting a valuable measure of strategic independence. A defence industrial sector should meet the critical needs of the Defence Force, add substance to South African’s deterrent posture, add substance to South Africa's standing as a country, and provide the ability to employ defence equipment sales as a tool of foreign policy; to bring valuable technological spin-offs for the wider economy and industry; play a crucial role in developing the country's intellectual skills capital; make a major contribution to GDP growth; generate foreign currency earnings from export sales and the support of exported equipment and systems; finally, reduce foreign currency spending for defence equipment.

4.3 GLOBAL DEFENCE INDUSTRY SUPPLY CHAIN FRAMEWORK

The global defence supply chain has been experiencing the diminishing of the manufacturing sources and also material shortages. The defence industries System Engineering (SE) community in the US agrees that closing the gap between Diminishing Manufacturing Sources and Material Shortages (DMSMS) policy and the practice would help to safeguard effective life-cycle support, from design & development, manufacturing, and in-service support of the product life cycles. To ensure reliability, availability, maintainability, and sustainability of the weapon items used, System Engineering principles and best practices should be effectively applied throughout the life time of the program; disciplined approach to prevent the negative impact should be formally instituted such as DMSMS principles is essential in improving the risk on obsolescence. Effectively managing major defence programs necessitates sound System Engineering principles; products develop testing, technology readiness assessments, and reliable independent costs estimates (Koczanski, 2010:4).

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Practically any article can become an obsolete item, this includes electronics, connectors, racks, motors, valves, adhesives, switches, circuit breakers, propellers, metal alloys, ceramic composites, gases, clothing or its different components and materials needed - obsolescence is a potential ‘show-stopper’. Obsolescence can impede aircrafts from flying, ships from sailing, and tanks from being deployed. Obsolescence can happen at any stage in the acquisition cycle, from design & development through to post-manufacturing, and has capability to negatively impact on weapon systems maintainability and also negatively impacts on the life cycle costs (U.S. Naval Sea Systems Command, 1999:01).

According to the United States Government Accountability Office (2010:10), … defence acquisition programs in the US and around the world continue to have problems manufacturing weapon systems. As a result, systems cost far more and take far longer to produce than estimated. Many programs authorized to enter production experienced billions of dollars in cost growth after the authorization – nearly two-thirds of those programs reported increases in average procurement unit costs. Several factors contribute to these issues during the planning and design phases. These include the inattention to manufacturing during planning and design, poor supplier management, and lack of a knowledgeable manufacturing workforce. Essentially, some of these programs moved into production without considering manufacturing risks earlier in development. This hindered managers from later managing those risks until they became problematic, and also led to subsequent problems with supplier management, such as prime contractors conducting little oversight of suppliers. Some programs also had an inadequate workforce – in terms of insufficient knowledge and numbers – to effectively manage and oversee defence manufacturing efforts.

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Figure 4.1 below compares acquisition life cycles through the supply chain process.

Figure 4.1: Comparison of acquisition life cycles through the supply chain Source: Adapted from Koczanski (2010:5).

The risk in the supply chain should be covered during the entire life cycle and manufacturing risks in particular should be considered earlier in the acquisition life-cycle framework. Figure 4.1 above illustrates the stages of the lifecycle phases; during the material solutions phase, prior to milestone A, the 2008 US policy instruction requires the analysis of alternatives to assess “manufacturing feasibility”. During the technology development phase, prior to milestone B, the instruction states the following: • Prototype systems or appropriate component-level prototyping shall be employed to “evaluate manufacturing processes”.

• A successful preliminary design review will “identify remaining design, integration, and manufacturing risks”.

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• A program may exit the technology development phase when “the technology and manufacturing processes for that program or increment have been assessed and demonstrated in a relevant environment” and “manufacturing risks have been identified”.

After milestone B, one of the purposes of the engineering and manufacturing development phase is to “develop an affordable and executable manufacturing process”. The policy instruction in this regard states that “the maturity of critical manufacturing processes” is to be described in a post-critical design review assessment; system capability and manufacturing process demonstration shall show “that system production can be supported by demonstrated manufacturing processes”; and the system capability and manufacturing process demonstration effort shall end, among other things, when “manufacturing processes have been effectively demonstrated in a pilot line environment, prior to milestone C”.

Finally, at milestone C, the instruction establishes two entrance criteria for the production and deployment phase, which include “no significant manufacturing risks” and “manufacturing processes [are] under control (if Milestone C is full-rate production)”. Low-rate initial production follows in order to ensure an “adequate and efficient manufacturing capability”. In order to receive full-rate production approval, the following must be shown: • demonstrated control of the manufacturing process • the collection of statistical process control data, and • demonstrated control and capability of other critical processes.” (United States Government Accountability Office, 2010:8‒9).

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4.3.1 Summary of the aircraft industry

An Aircraft Industry (2010:6–7) study notes that … despite a positive 10-year economic outlook for the commercial aircraft market, trends within the defence sector are more troublesome. Influenced by a competitive global market, industry consolidation during the past 20 years has negatively influenced the relative strength of the US defence industrial base. While consolidation afforded reduced costs and increased efficiency within the industry, it also limited competition and inhibited innovation, with long-term national security implications. Complex technical demands and performance expectations have redefined the role of the prime manufacturers increasingly toward the role of systems integrators delegating the traditional development, design and production roles to second and third tier suppliers. Given this transition and the effects of industry consolidation, the defence industrial base faces long-term uncertainty. Exacerbating this uncertainty is the dynamic nature of perceived USG international threats which drive both US defence strategies and the defence hardware markets supporting the strategies.

This report further states that … hardest hit by the global recession, the general aviation and business jet sectors also face very limited growth opportunity in the coming decade, in which six major manufacturers compete for a profitable, albeit limited, market share. Despite the recent declining performance punctuated by a 30% overall decrease in utilization during 2009, sales and production are forecast to grow in 2012 with a modest 1% annual expansion through 2025. Projecting demand for 9,300 aircraft valued at $153.9 billion through this period, industry analysts forecast US-based Cessna and Gulfstream, along with Canadian Bombardier, to earn 68% of overall market profits. Although reflecting only a small portion of this sector, the more affordable turboprop general aviation aircraft market is expected to outpace the more exclusive business jet market with an annual sales growth expected to exceed 3%” (Aircraft Industry, 2010:8).

Price Waterhouse Coopers (2011:2) discuss personal interviews with 18 senior executives from the aerospace and defence companies in Brazil, Canada, France, Germany, India, the United Kingdom and United States, and state that they believe that

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… working together with government, within the aerospace and defence industry, and even beyond sector boundaries is more important than ever. Governments will continue to hold the purse strings not only on military budgets, but on some key adjacencies as well. Technological breakthroughs in key areas like biofuels will require cooperation across the supply chain. And succeeding in some of the most promising new adjacent markets – like smart grids – will mean cooperating across sector boundaries too.

The Aircraft Industry (2010:6) study states that … within the transport market, Lockheed (C-130), Boeing (C-17) and Airbus (A-400M) are predicted to dominate market share for the next decade, despite extremely limited demand forecasts. Lockheed's C-130J will garner nearly one third of intra-theater lift sales through 2019, despite Embraer's KC-390 defence entry in 2013. Notably absent from DoD's long-term aircraft acquisition forecast through FY20 are plans for the next generation of strategic lift aircraft. Despite the termination of Boeing's C-17 production line and uncertainty regarding Lockheed's C-5 recapitalisation plans, the C-17 will dominate the strategic lift market, earning a 47% market share until 2015 when production lines close. At that time, the Airbus A-400M, projected to enter service in 2013, will challenge the C-17 as the world's dominant strategic lift capability – although it arguably falls short in strategic reach – with a projected 46.5% average market share of those remaining defence transport aircraft in production during the last three years of this decade.

In their 2011 Global Research and Development Funding Forecast, Bartelle estimates that Aerospace, Defence and Security (ADS) spending overall did decline in 2009 compared to 2008, but rebounded strongly in 2010. Compared to other sectors, ADS spending on research and development (R&D) appears to fluctuate somewhat less, with a more modest drop in 2009, and a smaller upswing in 2010. These figures don't take into account certain non-recurring development costs that Boeing incurred for the 787 and 747 in 2009; if that additional $2.7 billion were added, ADS would pin energy as one of the few sectors that didn't reduce industrial R&D spending in 2009 (Price Waterhouse Coppers, 2011:2).

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Figure 4.2 shows the R&D spending pattern within the industry

Figure 4.2: 2010 R&D expenditures (top 20 R&D companies by value) Source: Adapted from Price Waterhouse Coopers (2011:3)

Price Waterhouse Coopers (2011:4) asserts that … it is clear that innovation is critical. But where in the world is it happening? And do some countries have an edge? Historically, the US and some European countries – notably the UK, France, Germany, Italy and Spain – have dominated both research and manufacturing in A&D. But the emerging countries are beginning to catch up. A&D industry in the top five emerging countries (Brazil, China, India, Mexico and South Africa) will reach a value of around $260 billion in 2014. That is equivalent to a CAGR of approximately 15% over the 2009-2014 periods.

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Companies in mature markets are taking note, as illustrated by figure 4.3 below.

Figure 4.3: R&D investment by country, 2000–2010 (cumulative) Source: Adapted from Price Waterhouse Coopers (2011:4)

In its report, KPMG (2011:15) states: India was one of very few countries that showed how to manage its economy. One of the main reasons for that is their savings culture, and the way domestic consumption has kept pace with growth. By 2020, the country's average age will be 29, which gives it a significant edge financially and as an exporter of intellectual capital, over other economies that have ageing populations. Many analysts believe these demographics make India a better long-term prospect for investment than China. Most of India’s power equipment comes from China. If China develops technology, India will buy it. It is low- cost and India can leverage it to help India to compete globally. Therefore the development of China is actually helping India to compete.

Antony (2009:1) states in a keynote address: Offsets are today a common feature of international arms trade. It is estimated that offsets and related forms of counter-trade constitute 5% to 30% of global

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trade. More than a hundred countries use the mode of offsets in their arms contracts. Business and trade analysts put the exact volume of defence offsets at the global level at over $5 billion each year. The United States, the biggest arms exporter in recent times, is obviously one of the largest providers of offsets. In 2006 alone, it signed nearly $3.5 billion worth of offset contracts with more than 20 companies located in 12 different countries. At the global level, the threshold of defence offsets, that is the minimum value of the contract at which offsets apply, is as low as $0.5 million, whereas offsets as a percentage of the value of arms contract is more than 100% for some countries.

India's defence offset policy has been promulgated as part of the Defence Procurement Procedure (DPP). The offset policy has undergone two revisions since it was first promulgated in 2005. The latest revision was carried out recently and has been in place since 1 September 2008. India's offset provision applies to all capital acquisitions categorized as “Buy Global” or “Buy and Make with Transfer of Technology”, where the estimated cost of the acquisition proposal is Rs. 300 or more. A minimum offset of 30% of the indicative cost is required in such acquisitions. The offset obligations of the foreign vendors can be met either through investment in India’s domestic defence industrial infrastructure, including R&D, leading to Joint Ventures, co-development and co- production of defence items, or through purchase or execution of export orders for defence goods and services produced by Indian defence enterprises, both in public and private sector (Antony, 2009:1).

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4.4 AN OVERVIEW OF SAAB GRINTEK DEFENCE SUPPLY CHAIN MANAGEMENT

4.4.1 Saab Grintek Defence background

Saab Grintek Defence (SGD) specialises in the design, development and production of self-protection electronic warfare systems, recording and monitoring systems and associated products for air, sea and land-based applications. Currently it is executing various orders for customers in Europe, America, the Middle East and Africa. Customers include end-users, original equipment manufacturers, system integrators and local industries in customer countries. The company’s products include the transfer of know- how to enable customers to become strategically independent in supporting the electronic warfare and avionics equipment procured from SGD.

The company has been supplying specialised equipment to meet the ever-increasing and fast-changing technological demands of modern warfare. This business requires insight into operational requirements and experience in the design, development and manufacturing of electronic warfare systems. For over 24 years the company operated as Avitronics and was then bought by Saab AB as part of an offset deal for Gripen jet fighter supplied to the South African Air Force. For the purpose of this research work, the organisation will simply be referred to as SGD.

Alexander (2001:129) explains the relationship of the parent organisation with its subsidiary business units as follows: Unless the parent can create at least as much additional value as its full costs, both the owners and the business managers would be better off replacing the parent, or removing it altogether. Additional value is very different from overall group performance; although hard to disentangle accurately, the impact of the parent should be distinguished from the performance that the business units could achieve by themselves, especially on the supply chain. As many management buyouts have demonstrated, the performance may in fact be far better than what is achieved with the 'help' of the parent, even before allowing for the direct cost of the latter. The strategic challenge for the parent, therefore,

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is to demonstrate that it creates net value in its own right. That is to say, it enables the businesses to perform better than they would without its influence.

The company’s business model, which motivated the need for a supply chain management solution, can be briefly explained as follows: The company invests heavily in imported inventory and then manufactures equipment on receipt of sales. Hence, a healthy position in the markets it serves depends on the ability to conceive, design and manufacture specialised electronic warfare systems in a short turnaround time.

To maximise the company’s profitability, accurate tracking of inventory flow within the manufacturing process, making the right decisions regarding capital investment in inventory (material acquisition) and forecasting market trends to anticipate changing needs are required. The solution for handling this could also lie in the capability to offer a combination of low volume and high volume manufacturing and the ability to provide staff with the correct answers even during periods of engineering changes on the systems to be delivered.

Information is the foundation of a business, as it allows each department or area to function efficiently. Well-conceived information management that integrates people with processes and technology could make a breakthrough in creativity and productivity possible, as well as contribute to better cash-flow management. In turn, this could offer some benefit for market intelligence, sales support, the maintenance of complex systems and procurement status. This would enable the organisation to deliver the right quantity, on time, and within budget.

4.4.2 SGD supply chain challenges

The inventory build- up at SGD, which is depicted by days-in-stock of 512 days, has major implications for cash flow management in the business unit. The current average inventory, including the work-in-progress, is R192 million. Of this value, about R47 million is excess stock, R2 million is redundant stock and R1,9 million is invalid orders –

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cancel orders reported by MRP system. The customer order delivery precision measured over six months rolling average is reported on the ERP system to be 69.8%, as opposed to a target of 90% or more.

Further implications of this problem are the inadequate use of the current inventory management tool (ERP system), and the lack of an adequate replenishment order policy – when to replenish and how much to replenish. As a consequence, tracking of material status throughout work-in-progress using the MRP system is not sufficient, as the closed loop report back system has not yet been implemented. This lack of agility in changing procurement plans as new requirements become known leads to excess stock and the cancellation of messages on the MRP system.

A more flexible and, indeed, agile process is required to keep up with fluctuating demands in the MRP system – a critical factor for a cutting-edge technology company that has overlapping processes between development and production. These factors are the main drivers for the company’s search for better solutions in terms of supply chain planning and inventory management.

SGD is governed by an engineer-to-order environment, which is somewhat different from that of the make-to-order environment, as confirmed by the literature reviewed. In the make-to-order environment, engineering determines what materials will be required – the materials can come from the company's inventory or be purchased from suppliers. In the engineer-to-order environment, however, more information is needed from the customers, although more the engineers are responsible for more of the design detail than the customers (Jacobs et al. 2011:52).

Although the company is sufficiently aware of the serial production baseline requirements, the frequency with which changes in requirements occur is rapid. Thus, a rapid response time is needed to align with the continuous engineering changes (refer to

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figure 4.4 below) occurring in the organisation due to customers’ requests or product enhancement – in the year of 2011 there were 926 proposed changes.

Figure 4.4: Number of engineering change proposals 2011 Source: Saab Grintek Defence Configuration System (eB) (2012)

The above figure shows a typical level of engineering changes that occur in the supply chain process. These engineering changes are divided into hardware and software changes. The majority (80% completed ECPs) of these changes is hardware related changes that modifies the form of the items being built in the production line. As a result, any change that occurs in the bill of materials, the MRP should be updated to reflect this change so that the correct quantity of stock can be purchased of the right items needed – the management of this is crucial. Strict control over the changes should be maintained in accordance with the South African Civil Aviation Authority (SACAA) regulations when the affected products are flight critical. The SACAA conducts audits on a regular basis and the organisation has to conform to regulations. Due to the fact that

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most products are sold in the international market, the organisation is subject to strict control by the European Aviation Safety Agency (EASA) as well. The lack of adequate partnerships with the suppliers of SGD’s products also contributes in poor delivery performance by the suppliers (refer to figure 4.5 below). According to Hsieh and Tidd (2011:2), “firms collaborate with suppliers or customers in order to shorten time and product/service reduces the cost of new product/service development through complementary know-how/resource sharing”. Marketing plans are not currently tailored to suit production capabilities nor are they feasible for use by production to process and achieve delivery targets. Moreover, a relevant detailed analysis application tool does not exist to support the decision at this level in accepting orders from the customer level.

Figure 4.5: Saab Grintek Defence supplier performance Source: Saab Grintek Defence ERP QlickView Report (2012) Low volume procurement on its own poses a challenge for the supply chain; hence, the company is not in a good position to negotiate favourable terms with the suppliers in respect to delivery performance and price negotiation. Moreover, price elasticity plays a measurable role in the demand and supply equation. Therefore, if the organisation had

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leverage in terms of large volume procurement or at least a stable ordering plan based on the stable forecast it would be able to negotiate. Figure 4.6 below shows that production delivery performance was recorded as below 40% on a 12-month average for the year 2011 versus a target of 90% or better. The poor delivery performance can be attributed to many challenges ranging from high technical skill requirements, inadequate production documentation, product maturity, poor supplier delivery performance or a combination these factors.

It is inferred that frequent engineering changes in the production cycle have a ripple effect; if the product is not stable, then errors are likely to occur. The challenge is to keep the balance between production flow and the changes in the hardware, process and skills required for these changes, so that they take effect quickly enough not to disturb the production rhythm.

SGD Internal Production Delivery Precision 2011 100% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 79% 80% 70% 70% 65% 60% 46% 49% 51% 50% 41% 42% 45% 43% 44% 43.0% 39% 37% 40% 34% 33.9% 23% 29% 31% 25% 26% 30% 23% 19% 20% 20% 22% 20% 10% 0% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Ave Yr

Month-to-Month 6 Months Rolling Avg Target Poly. (Month-to-Month)

Figure 4.6: Production delivery performance Source: Saab Grintek Defence ERP QlickView Report (2012)

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On the other hand, customer delivery performance for the year 2011 was reported to be 70% at a 12-month average versus the 90% target or better set by the organisation (refer to figure 4.7 below). It is important to note that the delivery performance of suppliers feeds into an internal production delivery performance which, in turn, influences customer delivery performance – all three areas of the supply chain are connected from sourcing, to making, to delivery.

Contractual obligations for delivery are usually linked to penalties. Although the organisation can negotiate reviewed delivery dates, this is due to a pragmatic approach which views contracts as running for a number of years and, consequently, obsolescence is a major threat that can affect the project at any stage during development or production cycle. This has an adverse impact in terms of reliability, availability, maintainability, and sustainability. Figure 4.7 below illustrates the delivery performance for the year 2011, which started at below 50% but gradually improved to an average of 70% for the 12-month period. SGD Customer Delivery Precision 2011 100% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 88% 86% 80% 80% 80% 80% 81% 76% 77% 68% 70% 74% 69.8% 70% 65% 63% 65% 58% 64% 64.7% 56% 59% 59% 60% 60% 48% 52% 56% 48% 50% 40% 30% 20% 10% 0% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Ave Yr

Month-to-Month 6 Months Rolling Avg Target Poly. (Month-to-Month)

Figure 4.7: Customer delivery precision Source: Saab Grintek Defence ERP QlickView Report (2012)

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Table 4.1 below illustrates customer delivery performance ranking order for the financial year 2011 sales orders. Most of the sales orders are generated outside South Africa.

Table 4.1: Sales customer order split by delivery performance: 2011

No. Sales Customer Orders 2011 1 THE GOVERNMENT OF MALAYSIA 2 AVITRONICS LIMITED - MAURITIUS 3 ARMSCOR 4 FORSVARETS MATERIELVERK (FMV) 5 AERONAUTIQUE ET TECHNOLOGIES EMBARQUEES 6 AVITRONICS LIMITED 7 BAE SYSTEMS AUSTRALIA LTD 8 SAAB AB 9 RUAG AEROSPACE/AVIATION 10 ELETTRONICA S.P.A 11 THALES AVIONICS 12 HINDUSTAN AERONAUTICS LIMITED - KORWA 13 BAE SYSTEMS (OPERATIONS) LTD 14 SAAB ELECTRONIC DEFENCE SYSTEMS 15 EADS CASA 16 THALES AVIONICS (USD) 17 AGUSTAWESTLAND S.P.A. 18 AIRBUS 19 RDDS AVIONICS LIMITED

Source: Adapted from Saab Grintek Defence ERP QlickView Report (2012)

4.4.3 Saab EDS ZA supply chain application

In order to demonstrate the practices of supply chain management in SGD, it is important to study the internal supply chain system that covers the design process, the procurement process and the production process for contract execution.

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Figure 4.8 below illustrates the supply chain processes as practised at SGD. The supply chain process needs to be interpreted together with the business processes that are illustrated in Appendix A.

Master Scheduling

Forecasting Marketing & Sales Operations Planning MRP Planning ILS/ISS

Sell Develop Procure Inventory Produce Support

Development Sales Control Control Purchasing Control Operations Control Production & Inventory

Programme Management

Financial and Performance Monitoring

Figure 4.8: Supply chain as practised in SGD Source: Adapted from iPLAN Assessment Report (2009)

Figure 4.8 above shows that the supply chain process at SGD begins with the contract agreement after a solution concept has been sold to potential customers during the marketing and sales stages. Once the order has been received, development of the product or adaptations to an existing product to specific customer requirements will then commence. Once development has been completed and the product baseline is confirmed, the procurement process can be launched thus creating inventory for production to use during the production cycle. The production and procurement cycles are kick-started by the master scheduling plan, which incorporates the sales forecasting plan in accordance with the business plan. All this is managed in the MRP module of the

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ERP system. At the end of the production cycle, the product will be delivered followed by the commencement of in-service support (ISS). This framework also supports integrated logistics support.

Finance and programme management support the production and inventory management cycle from development through to contract execution and finally to customer delivery and support. In this context the supply chain challenge is the leap between the development phase and production phase. As a result of pressure to meet expected contractual time frames, the time allocated (on average 3‒5 years) is often not sufficient to develop, purchase, produce and deliver on time. Furthermore, delivered products are supported in the field and are maintained for up to 25 years. Therefore, the production cycle commences while the development cycle is still not entirely completed, otherwise the delivery time scales will be missed.

As a result of the market pressure, products are released on the production line immaturely. In order to avoid this, tight collaboration is required between development and production. This also puts pressure on data administration and maintenance in the MRP system.

To achieve this kind of collaboration, integrated supply chain solutions (refer to Appendix B and C) can be applied to resolve some of these challenges, especially the misalignment between manufacturing planning, which is evident in the MRP system, and the entire supply chain planning, which starts from business planning & strategic planning through to production schedule and shipping over the contract term.

In order to execute contracts, SGD’s business relies heavily on a multi-project organisation. The time between marketing and sales activities to actual delivery can be anything from one to five years. Pinto and Kharbanda, (1996:45) assert the following: …the use of project management techniques has become an increasingly well accepted method for performing a wide range of organizational tasks. More and more companies are coming to understand the unique benefits that can be derived from project

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management, including rapid product development, better and more efficient use of all resources (human and monetary), and increased and more productive cross-functional communication. Saab has adopted and set of various governance frameworks for project management over time. But the effect of these on the development of procurement plans, production plans and estimates is not clear. Or non-equivocally display benefits on the bottom-line or derive value when it comes to business KPIs such as economic benefits (ROI or cost reduction), throughput (delivery precision or optimized efficiency), and human resource performance (organizational culture).

This statement is supported by Thomas and Mullaly (2008:246) in research done for the Project Management Institute (PMI). They explored a framework that defines the value of project management in 55 case study organisations through the lenses of satisfaction, alignment, process outcomes, business outcomes, and return on investment. They found that: … the first four measures are able to be directly assessed, within the case-study organizations. The idea of return on investment, while simple in principle, and theoretically possible to be derived where direct value measures can be quantified, has proved extremely elusive. None of the case study organizations that could quantify the benefits associated with their project management implementations have done so. Moreover, there is no case-study organization that can directly and discretely measure the actual costs associated with their implementation. Finally, no project management implementations represented within the case studies have been initiated based upon a promised business case, or expressed an interest in determining a cost-benefit analysis.

The implication is that specific attention needs to be given to the management of tools and systems that support the project management framework. Such tools and systems should be incorporated in the ERP system, which supports the project management framework as well as supporting the supply chain management process.

These two (supply chain management and project management) functions can be enabled to support each other and not work independently from each other, or work in

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isolation. Hence, the ERP system can be applied to support a collaborative view on the level of alignment between strategy, structure, systems, skills, processes and goals. Figure 4.9 below illustrates the Winning Business (WB) process in Saab.

Figure 4.9: Marketing and sales process (within the Winning Business process) Source: Adapted from Saab Business Management System (2012)

Figure 4.10 below illustrates the Execute Business project process at SGD. This is a handover from Marketing and Sales Winning Business (WB) process, Winning Business stage 5.

Figure 4.10: Project execution process Source: Adapted from Saab Business Management System (2012)

All customer contracts are managed according to the Execute Business process. The process starts with the contract owner assigning a group of people that is responsible for the execution of the contract. This group then participates in the contract handover at the end of the production process together with those responsible for the relevant support. Ultimately it is the programme office that has governance responsibility over this process. Initialisation starts with WB5 gate decision (part of Winning Business) in order to communicate all aspects of the contract to the persons responsible for the contract.

The WB5 gate decision entails the formal handover from Winning Business to Execute Business (Initialise Contract). The handover of information also includes risk and

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opportunity analyses, including future business opportunities to be handled by the contract organisation. All information from the WB5, and all the underlying estimates and information are made available to those responsible for the contract. The Contract Directive includes financial and technical targets as well as additional customer-specific reports. At this stage, the order will be registered on the ERP system, and a node structure will be configured that is relevant to cost management. This is the time to initiate time-critical activities, such as long lead items, required export control and other relevant authorisation, required investments (e.g. facilities and tools), bank guarantees or other financial mechanisms, customer furnished equipment and data.

The EB1 decision gate includes the planning stage of execution and the baseline definition. This is where the contract aim and its final outcomes are defined. In addition, contract outcomes such as time schedules, contract milestones, delivery plans and contract budgets are defined. Contract management function definitions are also outlined in this stage, such as administration, technical, commercial, configuration, quality and security coordination. This is one of the important stages that interface with supply chain management planning, as well as manufacturing planning; hence, it also outlines and identifies the contract stakeholders, such as customers, end-users, contract partners, subcontractors, participating parts of the internal organisation and other contract interfaces. This is also the stage where quality and environmental requirements are defined for flow down to the execution functions, such as procurement and production.

Resource and competence plans are also described in this stage; these specify the need for personnel and other resources in terms of the contract and which support the contract strategy. Finally, the reporting and communication plan is outlined which will state the types of media, reports and information that will be needed and the meetings to be held for internal and external stakeholders.

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The purpose of the ‘Plan’ phase is to ensure that all the requirements of the contract directive have been broken down into plans, and that the plans are in line with company policies and expectations. During this phase the execution format of the contract is decided, for example, one project, many projects, work packages or manufacturing ordering. To ensure the quality of the plans, a review should be conducted with necessary expertise involved prior to the EB2 decision gate – this means the involvement of the supply chain process.

The quality of inputs at this stage is highly dependent on the expert knowledge of the supply chain personnel and the data captured by the supply chain system. In the context of this research, this stage is crucial for customer satisfaction, alignment, process outcomes, business outcomes, and return on investment. Moreover, this stage is the outcome of the master time schedule, payment plan and project margins.

The EB2 decision gate is the execution stage for contracts, as planned in EB1 decision gate. The purpose of the execution phase is to manage contract objectives up until final product or service delivery. In this phase any deviations from EB1 plans have to be managed, such as change requests from engineering and customer changes; renegotiated time schedules; contract amendments; non-conformances and maximizing opportunities in customer relations. The primary activities include production activities, equipment deliveries, reporting on financial status and trends such as cost-to- completion, overall technical status, operational requirements, scheduling, risk and opportunities; they also include continuous improvement.

Part of these activities involve following up on payments and monitoring invoice interest in accordance with contractual obligations. Specific customer requirements for reviews or a longer duration of the contract may require additional EB3/4 decision gates. The activities in each phase are very dependent on the type of business being dealt with, as is specified in the contract directive.

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Decision gate EB5 marks the end of the contract execution, and confirms that the contract purpose has been fulfilled and that the result is ready for final handover or delivery to the customer. The EB5 formalizes the economic and technical fulfilment of the contract targets. Handover to the in-service support organisation or product maintenance is decided and confirmed.

Based on the discussion above, it is clear that the internal supply chain system is governed by the rules of project management – what to do and when to do it. Following the Winning Business process, marketing and sales receive orders and the project office delivers through cross-functional domain coordination using the Execute Business process.

Cross-functional domains include development, procurement, production and system integration. The challenge with this approach is that the manufacturing planning function that ensures products are delivered on time is carried out within the production environment through the ERP system, using MRP principles for capacity planning, and supported by the engineering design environment. The responsibility to deliver to the customer is controlled and managed from a production domain, therefore compelling an argument for a more collaborative approach between cross-functional domains. The risk of not delivering on the promised date is increased when commitments are undertaken in the project domain; however, execution happens in the production and procurement domains through manufacturing planning principles as described below.

The production domain makes use of a manufacturing, planning and control process framework, as illustrated in figure 4.11 below, and an ERP (Qmuzik) data framework, as illustrated in Appendix E. The projects or products for different customers are all customized to a greater or lesser extent and therefore there is limited synergy between them. Figure 4.11 below describes the manufacturing, planning and control as practiced at SGD.

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The strategic process governs demand management and manufacturing planning on the basis of the business plan and sales inputs. The operational process describes the production planning phase, which entails resource planning and capacity planning in terms of tools, equipment and personnel. If feasible, the plan is then released to the execution process in the production line and procurement orders are generated on the system on the basis of the fixed bill of materials defined by the production engineers.

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Figure 4.11: SGD manufacturing, planning and control process Source: Adapted from BMS Process (2012)

The uniqueness of different customer requirements (in terms of bills of materials) puts pressure on both the internal and the external supply chain to work towards achieving

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customer delivery dates as committed to by the Program Office in the WB3 and WB5 decision gates. This is done in most cases without fully knowing all the variables within the project, such as the complete bill of materials, since an engineering-to-order approach is followed.

The execution process is completed by the build-up of line replaceable units (LRU) that form part of the system to be delivered to the customer, such as the electronic warfare IDAS system (Integrated Defensive Aids Suite) referred to in Appendix F.

Design changes often happen during the manufacturing and procurement phases. Changes originate either from the customer in terms of making adaptations to their platforms, or in terms of internal design improvements to enhance the equipment performance or as a result of scope creep (i.e. added requirements or changes in original project requirements).

Frequently, MRP system and production capacity cannot handle the disruptions to the rigid production plans adequately due to engineering changes. Then, engineering resources are often required to assist production during product assembly and testing. It should be noted that the production environment is more of a job-shop environment where the practice is to make design changes while the products are on the production line, consequently making adaptations as the project progresses. When scope creep occurs, as is often the case, it puts the credibility of the manufacturing planning at risk, which in turn puts the entire project plan at risk. Moreover, material sourcing and supply is often compromised as a result of the engineering changes that are implemented on the MRP system. If changes occur, the MRP list for component procurement results in invalid orders being placed with international and local suppliers which cannot be cancelled owing to contractual obligations. This, in turn, contributes to the excess stock on hand. Excess stock is also increased by a practice of ordering economic order quantities that are in excess of the amount of components required – this is done to derive benefits from economies of scale, but leads to inventory building up over time.

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The purchasing function has the responsibility and authority to purchase products and services from preapproved suppliers that have been audited by Saab’s purchasing department. According to Brengesjö (2009:1), “the Purchasing department is responsible for preparing and maintaining a list of approved suppliers to Saab”. In a supplier evaluation, a systematic audit and weighing of commercial, technical, environmental and quality system factors is performed. How comprehensive the evaluation will be is controlled by how important or critical the product or service is, as well as previous experience of the supplier in other Saab units. This is desirable for rating the approval and experience of the supplier (Brengesjö, 2009:2).

Classification of suppliers is done for suppliers of products/services and equipment that are used in deliveries to customers: • …Class 1 Suppliers are strategic suppliers that deliver complex product/service and/or have a major impact on the quality of our products or constitute a risk that may affect SGD production. • Class 2 Suppliers are suppliers that may also supply items that may affect the quality of a product but the risk is minimal. • Class 3 Suppliers supply items/services that are not part of delivery to customer and have no direct impact on production and SGD productions. • The purpose of the supplie11r evaluation is to determine a supplier’s capability to accomplish a commitment to the correct quality, delivery time and handling of the environmental effects as well as at the lowest total cost to the company (Brengesjö, 2009:2).

In total, the company conducted business with 60 of the Class 1 suppliers and 74 of the Class 2 suppliers during the 2011 financial year. In the ERP system there were just over 3000 suppliers active for the year 2011 (refer to Appendix G and H). Owing to the project-oriented supply chain approach, suppliers are required to supply a complete set of requirements to enable and support complete equipment integration during production. When there is a single item delay, production will be delayed during integration and will therefore delay the entire project execution. Production works with a

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complete set of requirements and when there is a delay in procurement it negatively affects production and, as a result, impacts on on-time delivery to the customers. The company manufactures a wide variety of products from a wide supplier base and therefore it is characterised by heavy inbound logistics – few end-user customers and a large number suppliers in the value chain.

4.5 SUMMARY AND CONCLUSIONS

In conclusion, this chapter provides an empirical study of supply chain interaction with manufacturing planning at SGD. In the defence industry, the supply chain is relying on a number of role players comprising interconnected suppliers. The engineering maturity of the products to be manufactured plays a big role in stabilising and enhancing the performance of the entire supply chain. Material acquisition is an important factor that should be considered at all stages of the product life cycle: during product development, component procurement, manufacturing and after-sales support.

To maximise the company’s profitability, accurate tracking of inventory flow within the manufacturing process, making the right decisions regarding capital investment in inventory (material acquisition) and forecasting market trends to anticipate changing needs are required. The solution for handling this could also lie in the capability to offer a combination of low volume and high volume manufacturing and the ability to provide staff with the correct answers even during periods of engineering changes on the systems to be delivered.

Manufacturing readiness is a key factor which needs to be monitored during the early development process in terms of capability, skills, resources, process and technological advancement in order to mitigate the risk of project overruns. Concurrent design and manufacturing data-pack should be encouraged to synchronise customer expectations with the time frame, budget and quality, and in accordance with streamlined internal collaboration processes.

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The development process has a major impact on both the supply chain and the manufacturing process and its performance, hence a unique and different set of requirements prevails for development work as compared to customer-driven demands. Development requires prototyping (once-offs) to prepare for the manufacturing baseline and low-scale production.

Finally, it is evident that Programme Office is the dominant functional area in the SGD supply chain. Understandably so: the Programme Office bears the responsibility to deliver on time and within budget for all customer contracts. Accordingly, a project based approach is followed to achieve this mandate and this result into a silo effect whereby the overall business objectives are overlooked, not intentionally but because of projects fighting over the limited resources needed to maximise individual project outcomes such as project margins.

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CHAPTER 5

5. DATA REPRESENTATION, ANALYSIS AND INTERPRETATION

5.1 INTRODUCTION

This chapter describes the empirical evidence gathered from the survey, in the form of a questionnaire that was employed in this study. The data collected is analysed in relation to the research objectives set out in Chapter 1 and the data collected is compared to the reviewed literature. Variables identified by means of the literature on the interaction between supply chain management and manufacturing planning factors also are analysed. This chapter presents the conclusions that have been drawn from the primary data obtained from the literature review. The managerial implications and insights derived from the conclusions are also discussed.

The lack of best fit between supply chain management and manufacturing planning at SGD has led to this investigation into the misalignment between supply chain management and manufacturing planning in the organisation. This is done with a view to identifying factors that have influenced the 43% manufacturing delivery performance achieved in 2011. The research study makes a direct link between 43% manufacturing ‘make’ delivery performance and 69.8% overall end customer delivery ‘deliver’ performance in 2011. The two performance outputs are also directly linked to the 69.7% supplier ‘source’ performance achieved in 2011. Accordingly, the rationale presented in this study is that, in order to improve the overall performance of the customer delivery, the core functions within the supply chain, such as the manufacturing function and the procurement function, will have to be improved; not in isolation from each other, but rather as a unit, connected by a supply chain management ‘plan’ that would underpin manufacturing performance and procurement performance. In other words, the supply chain plan needs to be in place first followed by the manufacturing plan and then only

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can the procurement plan be derived. Once these are in sync, the interaction between supply chain management and production planning should have improved and should achieve the company targets of 90% and above.

From the discussion above, the analysis and interpretation of the data collected will follow the plan, source, make and deliver supply chain processes. This analysis will be split into eight phases. The first phase of the analysis contains background information supplied by the respondents that participated in the study – this provides a profile of the respondents. The second phase covers the strategic direction that incorporates the supply chain planning in the manufacturing-to-order environment, which is reflected as Part A of the questionnaire – this will cover supply chain planning in terms of ‘plan’. The third phase will extend from Part A of the questionnaire to interpret the data on the sourcing functional area – this will cover the sourcing function ‘source’. The fourth phase of data analysis will assess manufacturing planning data, which is reflected in Part B of the questionnaire – this covers the function ‘make’.

The fifth phase covers the design influence, which is reflected in Part C of the questionnaire, that affects manufacturing function; hence, the engineering changes reflected in the data collected in year 2011, that is, 1038 changes proposed and 926 of completed – this covers the ‘design‘ part of the ‘make’ functional area. The sixth phase comprises the data interpretation of the performance improvement, as perceived by the respondents under improved supply chain performance. This is reflected in the final section of the questionnaire, Part D, which focuses on accurate forecast orders (which can be interpreted as improved business intelligence gathering), customer delivery performance (which can be translated as increased sales opportunity), reduction in excess stock (which can be interpreted as an improved balance sheet) and order fulfilment cycle (which can be interpreted as increased customer satisfaction). The seventh phase deals with the descriptive statistics and the final phase, that is, the eighth phase, deals with the experimental control measure testing the differences, if any, among the various groups that participated in the study.

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This study presents the results of the questionnaire administered at SGD, which operates in the electronic military defence industry. The focal company, SGD, is one of the three largest private-sector defence firms (Reunert, Altech and Grintek) based in South Africa. To date, little research has been conducted on military defence companies to assess and analyse the best fit between supply chain management and manufacturing planning in this engineering-to-order environment. Lean or agile manufacturing strategies mapped to the supply chain strategy, choice of functional supply chain strategy (predictable products – high volume) and innovative supply chain strategy (unpredictable products – low volume) in the military defence industry therefore require more research against the backdrop of today’s defence budget cuts in order to improve the efficiency of the supply chain.

This chapter commences by describing the research method. This is, followed by a discussion on the data presentation and data analysis methods employed. Subsequently, the interpretation of the results of the questionnaire and the resultant implications for management are assessed. In order to make the study manageable and to eliminate the effects of compounding elements in the research area, the researcher decided to focus on SGD.

5.2 RESEARCH METHODOLOGY

In the opinion of Saunders, Lewis and Thornhill (2009:154), “there is inevitably a relationship between the data collection technique you choose and the results you obtain. In short, your results will be affected by the techniques and procedures used”. The questionnaire was the main instrument used to collect primary data in this study. Most questionnaires used in research are self-administered. Golafshani (2003:597) explains that “researchers who use logical positivism or quantitative research employ experimental methods and quantitative measures to test hypothetical generalizations and they also emphasize the measurement and analysis of causal relationships between variables to illustrate the meaning of quantitative research for its use of explaining social problems”.

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Golafshani further states that Quantitative research allows the researcher to familiarize him/herself with the problem or concept to be studied, and perhaps generate hypotheses to be tested. In this paradigm: (1) the emphasis is on facts and causes of behaviour, (2) the information is in the form of numbers that can be quantified and summarized, (3) the mathematical process is the norm for analysing the numeric data and (4) the final result is expressed in statistical terminologies. Generally, quantitative research supported by the positivist or scientific paradigm, leads us to regard the world as made up of observable, measurable facts.

Using a structured questionnaire, this study has allowed the researcher to test expert opinion in terms of 49 variables which support the statement that ‘there is a misalignment between supply chain management and manufacturing planning at Saab Grintek Defence leading to poor delivery performance’. The emphasis of the survey was on phenomena as they are experienced by the respondents and also on the causes of the misalignment in the functional areas of the supply chain.

The questionnaire was designed in such a way that it did not influence the responses to the questions and the respondents were assured that their responses would be kept confidential. When answering the questions the respondents were encouraged to be objective. The research questions were designed with the intention of exploring the research objectives, as well as understanding the nature and the business environment of the research site. The questions placed emphasis on the applicability of the statements to reveal the ‘what’ that is taking place and also ‘how’ this takes place.

The 4-page questionnaire, consisting of 49 questions, as well as additional comments, was designed to be completed in 20 to 30 minutes. The questionnaire was emailed to 72 people who work in the various value chain functional areas, including Production, Procurement, Design & Development, Programme Office, Product Management, Quality, Configuration & Operational Excellence, Finance, Marketing and the Chief Operations Office (COO). These 72 respondents were selected on the basis of their expertise in their respective supply chain functional areas, and the list consisted of

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individuals from semi-skilled personnel to the executive management level. Special attention was given to the quality of the information gathered in respect of the questions asked. The outline of the questionnaire was both confirmatory and exploratory in nature to enhance the content validity. The questionnaire was confirmatory in that it examined the interaction between supply chain management and manufacturing planning as carried out in practice as opposed to the way it is described in the theory. On the other hand, the questionnaire was exploratory in nature in that it examined: (1) what the factors are that contribute to poor manufacturing delivery performance; (2) how the lack of efficient supply chain management influences the manufacturing planning; (3) the important role strategic outsourcing plays in improving supply chain performance; (4) how the lack of internal and external collaboration affects supply chain performance, and (5) how poor product design practices affect manufacturing delivery performance. This was done with a view to enhancing the validity and reliability of the research.

Golafshani (2003:599) provides guidance in this regard: “validity determines whether the research truly measures that which it was intended to measure or how truthful the research results are”. He further explains with respect to reliability: “the strand for reliability is whether the results are repeatable”. Therefore, the researcher has considered carefully the type of instrument that may prove to be repeatable and consistent, and therefore reliable. The instrument used was found to be appropriate and valid.

For the purpose of in depth analysis, the researcher collected core data based on 43 variables and these were subdivided into four parts, namely; Part A which covered supply chain planning and consisted of 17 questions; Part B which covered manufacturing planning and consisted of 13 questions; Part C which covered the influence of product design and consisted of nine questions; and lastly, Part D which covered competitive advantages benchmarks based on the Supply Chain Council statistics and consisted of four questions. Detailed research study analysis and interpretation focuses on the value-adding questions to the research objectives to enrich

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the analysis of the findings and those that enhance the understanding of the problem identified and also seek to answer the research questions.

In order to ensure reliability, that is, the extent to which results are consistent over time and accurately represents the population, and also validity, an in-depth analysis was conducted on the data collected from the 17 questions on supply chain management (6), manufacturing planning (4), product design influence (3) and competitive advantage (4) in the survey. The rest of the questions were analysed using descriptive statistics. In addition, company specific internal interest questions were included to add value to the company’s internal planning systems and practices.

Table 5.1: SGD employee response rate RESPONSE RATE RETURNED SAMPLE SIZE PERCENTAGE

SGD EMPLOYEES 38 72 53%

TOTAL 38 72 53%

Table 5.1 depicts the response rate obtained from the 72 questionnaires distributed. Of the 72 potential respondents, a total of 38 complete and usable responses was received, yielding an effective response rate of 53%. The response rate was influenced by the fact that a questionnaire is relevant to individuals who are directly involved in the supply chain management functional areas or those who are directly affected. The least number of responses was noted for employees who are not directly affected. The most number of responses was noted for employees who are directly involved in the SCM.

The primary objective of this dissertation is to make suggestions for improving manufacturing delivery performance and the secondary objectives of this research study are (1) to assess internal collaboration interfaces within the cross-functional structures of the integrated supply chain system, (2) to review the challenges of strategic sourcing within the military defence manufacturing organisation.

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The empirical analysis was carried out using descriptive statistics and an ANOVA (analysis of variance) technique. The researcher used a Likert-type rating scale according to which the respondent is asked how strongly she or he agrees or disagrees with a statement on a five-point rating scale. The respondents were asked to express their opinion on given statements on a scale of (1) Not at all, (2) Very little, (3) Somewhat, (4) Great extent and (5) Very great extent. For the purpose of this research, scale point 4 and 5 represent that the respondents strongly agree with the statement, whereas point 1 and 2 represent that the respondents strongly disagree with the statement. The scale point 3 represents that the respondents are neutral. In order to interpret and analyse the data as presented numerically, this research will apply central tendency measures, namely, average opinion (mean) and common opinion (mode) values derived from statistical data. In addition, the extent to which the different individual opinions differ from the average opinions, indicating the dispersion measures (standard deviation), will be used in the interpretation of data.

The relative values will also be analysed using the top two-point scale opinion (strongly agree) compared with the bottom two-point scale (strongly disagree). This is done with a view to analysing the strong opinions of the respondents and assessing whether they agree or degree with the statement. Less emphasis is put on the middle point (somewhat), as the respondents who indicate a neutral position will be eliminated as being less reliable for data analysis and decision-making purposes.

In order to understand why the exclusion of neutral, or fence-sitting, options may shift the distribution of responses, we first must consider why respondents choose to indicate neutrality. As discussed above, one reason is that the respondent truly has a neutral attitude toward the object. In this case, there is low activation of either positive or negative evaluations and one can characterize the respondent's attitude as truly being neither positive nor negative. As such, a singular bipolar attitude scale should accurately reflect the attitude regardless of whether or not a neutral position exists. While the inclusion of the neutral option itself will reflect real neutrality, its exclusion would shift

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response slightly in either direction to the closest category similar to range effects (Nowlis, Kahn & Dhar, 2002:320).

Saunders et al. (2009:379) explain that rating questions most frequently use the Likert- type rating scale in which the responder is asked how strongly she or he agrees or disagrees with a statement or series of statements, usually a four, five, six or seven- point rating scale. Furthermore, Chimi and Russell (2009:1) state that the Likert scale is used in a wide variety of circumstances, among them when the value sought is a belief, opinion or effect, when the value sought cannot be asked or answered definitively and with precision or when the value sought is considered to be of such a sensitive nature that respondents would not answer except categorically.

5.3 ETHICAL CONSIDERATIONS

This study is keeping with the sound ethical practices and fair research considerations. All efforts were made to protect the basic rights and welfare of individuals involved in the study. All data gathered was treated with the strictest confidentiality. All the respondents participated in their free will and freely agreed to contribute to this study. Babbie and Mouton (2009:546) asserts that “… participation in research should normally be voluntary”. Research studies should not intend to harm those who take part in it. Participants can agree or willingly knowing and accepting the harmful risks of the research study that they are involved in. All scientists conducting research agree that participants should not be harmed (Babbie and Mouton, 2009:546).

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5.4 PRESENTATION AND ANALYSIS OF DATA

5.4.1 Background information

Job Level Respondents % Semi-skilled 0 0%

Programme Office 5 13%

Skilled technical/Academically qualified 9 24%

Junior management/supervisor 3 8%

Mid-management /professionally qualified/specialist 13 34%

Senior management 2 5%

Executive management 6 16%

TOTAL 38 100% Figure 5.1: Respondents by position level

Figure 5.1 indicates the position level of respondents and depicts that 63% of the respondents are in management positions, 24% are on the technically skilled level and 13% of the respondents are in the Programme Office (project management discipline). Executive management accounts for 16% of the 38 respondents.

The respondents in the management team would be able to contribute significantly to the research study by giving a fair account of the interaction between supply chain management and manufacturing planning as they experience it. In addition, the specialist technically skilled respondents also contributed a great deal to the research because they are specialists in their discipline. They include buyers and production planners and play a big part in the sourcing and making areas of supply chain management. Lastly, the Programme Office, through the project managers, has a big influence on the way contract execution is handled, as they bear the responsibility of delivering on time and within budget on all customer contracts.

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80 120% 72 70 100% 100% 100% 60 83% 80% 50 60% 38 40 54% 60% 50% 30 53% 36% 40% Returned 20 16 Sample 13 14 20% 8 20% Response Rate 10 7 7 5 6 5 7 5 5 2 2 3 4 1 0 0% 0 0%

Figure 5.2: Respondents per division and their separate response rate

Figure 5.2 above presents the response rate of 72 questionnaires distributed by division. Of the 72 potential respondents, a total of 38 complete and usable responses were returned, yielding a response rate of 53%. This response rate was influenced by the fact that the questionnaire was seen to be only relevant to certain individuals who are directly involved or directly affected by the supply chain and its performance. The total staff complement of SGD employees who are involved in the supply chain management function is approximately 80 employees. Figure 5.2 depicts the response of the different divisions in SGD that participated in the research questionnaire. It is important to note that more than 84% of the respondents who participated are deemed to be the core of supply chain functional management areas at SGD: Production (100%), Finance (100%), Procurement (83%), COO Office (60%), Programme Office (54%), and Quality, Configuration and Operational Excellence (50%).

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The response rates were deemed to be high enough for the purpose of descriptive statistics among respondents from the Procurement, Production and Programmes (83%, 100% and 54% of respondents, respectively), but too low in Product Management, Marketing and Design (0%, 20% and 36% respectively). Hence, an analysis of the misalignment between functions focused specifically on the misalignment between supply chain areas, which fits the purpose and focus of this research study, as well as investigating internal collaboration within the supply chain process.

18% 53% 13% 13% 3%

0-1 years 1-3 years 3-5 years

5-10 years More than 10 years

Figure 5.3: Length of period of employment at SGD

Figure 5.3 shows the length of respondents’ period of employment with SGD. The pie chart depicts that 53% of the respondents had worked for SGD for a period of more than ten years, 18% for a period of five to ten years, 13% for a period of three to five years, 13% for a period of one to three years and, lastly, 3% for a period of one year or less. It is important to note that the majority (71%) of the respondents had been employed by SGD for more than five years. The significance of this variable is to give credibility to the respondents’ opinion, based on the respondents’ experience in supply chain management or related experience.

Experienced respondents give a degree of objectivity to the research survey and are deemed to be non-biased. With the knowledge gained and also being familiar with the

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terminology and application of the supply chain concepts, the respondents provide a fair account of what is taking place.

25 21 20

15

10 6 5 5 4 1 1 3% 11% 55% 16% 13% 3% 0 Matric (M) Other Degree/ Honours Master Doctorate National degree level degree level degree level Diploma (M (M + 3) +3 )

Figure 5.4: SGD respondents by level of education

Figure 5.4 shows that 55% of the respondents have a bachelors degree or diploma, 16% have an honours degree, 13% have a master’s degree, 3% (1) has a doctoral degree, while 11% of the respondents have other qualifications and only 1 (3%) has a just a matric certificate. This is significant as it shows the level of education and the result implies that the respondents are people with expert knowledge in their field of work and would therefore provide valuable knowledge for this research – about 88% of the respondents have acquired a level of education from diploma level up to doctoral level. This research relies on collecting credible information that is reliable and usable for data analysis; one way to show reliability is the level of confidence that one has that the respondents understood to questions posed to them. The high level of education offers a higher degree level of confidence that the information provided is representative of the situation; hence the respondents would have understood the question and provided an accurate account of the situation.

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45% 45% 40% 35%

30% 24% 25% 20% 16% 15% 10% 5% 5% 5% 5% 0% None Very Low Low Medium High Very High

Figure 5.5: Work experience with ERP system

Figure 5.5 shows that 74% of the respondents who participated in the study have a medium to very high level of experience in using the ERP system. Only 26% of the respondents have a low level to no experience in the use of the ERP system. This data shows the level of experience of the participants using the tool within SGD, therefore they would understand the supply chain challenges.

40% 37% 35% 30% 25% 21% 21% 20% 13% 15% 8% 10% 5% 0% 0% None Very Low Low Medium High Very High

Figure 5.6: Respondents’ role in supply chain management

Figure 5.6 above indicates that all respondents are currently involved in the supply chain management process at SGD. About half of the respondents have a medium to very high role within the supply chain management system; the other half of the respondents

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play a low to very low role in the internal supply chain management system. The significance of this variable is that the respondents are split in half in terms of their view of the role that they play in the supply chain management process. One half has a medium to very high role and the other half has a low to very low role within the supply chain, but all the respondents have some role to play within the supply chain.

86% 90% 80% 80% 70% 60% 50% 33% 34% 40% 30% 20% 20% 13% 10% 0% 0% 0% 0%

Figure 5.7: Respondents’ formal training in SCM by department

About 66% of the respondents have not undergone formal training outside the organisation in supply chain management, leaving 34% that have undergone formal training. Over 80% of the respondents in Procurement have been formally trained in supply chain management and 86% of the respondents in Production have received formal training. The results of the research questionnaire convincingly show that SCM training is not regarded as equally important in the various supply chain functional areas. This is indicative of the silo effect and might also be one of the contributing factors to the misalignment between manufacturing planning in Production and the rest of the supply chain functional areas; accordingly, not everyone sees the same picture. It is significant to note that none of the Programme Office personnel (project managers) have received training in SCM and this functional area is responsible of all contract executions at SGD throughout the value chain. It is evident from the study that this functional area is

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responsible for ensuring that there is effective SCM throughout the value chain; hence the responsibility and accountability to the client to deliver on time and within budget.

5.4.1.1 Background conclusion

Of the 72 questionnaires distributed, a total of 38 complete and usable responses was returned and were deemed to be representative of the sample size of approximately 80 employees involved in the supply chain management function. The balance of eight personnel were individuals who are not directly involved or directly affected by the supply chain and its performance, for example secretaries and administrators.

One of the important aspects of the respondent profile is that about 84% of the respondents who participated in the study are from the core of supply chain functional areas: Production, Procurement, Program Office, Finance, COO Office, Quality, and Configuration and Operational Excellence. This suggests that the answers gathered from the questionnaires are reliable in terms of addressing the primary research objective and the secondary research objectives.

The low response rate of 53% can be attributed to Design, Marketing and Product Management functional areas. This may be because these departments do not see themselves as part of the core of supply chain management, although the researcher believes that these departments are crucial to supply chain operation in an engineering- to-order environment, where crucial key design components for sourcing are defined at an early stage of the supply chain process, product management plays a crucial role in the recipe of product maturity and marketing drives the customer demands.

Most of the respondents are in management positions, are experienced in terms of the functions of the organisation and have also obtained a tertiary qualification. The significance of these attributes lies in the ability of the respondents to interpret and understand the research questions asked, consequently providing valuable information for the study as well as providing the basis for a quantitative analysis of the data collected.

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The respondent profile also provides insight into the extent of the formal training that the respondents have undergone in the supply chain discipline. Because of a belief that the supply chain resides in the Procurement and Production domains only, all departments, except Production and Procurement have not acquired adequate levels of formal training in supply chain management. Accordingly, management is recommended to consider providing general training for the rest of the supply chain functional areas in the company as indicated above.

5.4.2 Supply chain planning data analysis: Part A

42% 45% 37% 40% 35% 30% 25% 20% 15% 8% 8% 10% 5% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.8: Supply chain planning as an input to strategy formulation – V1a

About 42% of the respondents strongly agreed that supply chain planning has a role to play in the strategy formulation of the business, as opposed to 8% of the respondents that indicated that supply chain planning is not taken into consideration at all, while the other 8% of respondents indicated that this is done to a very small extent. The other 42% of the respondents somewhat agree that supply chain planning is taken into account when the organisation is developing business strategy and/or business plans.

The literature reviewed indicates that the supply chain has become leaner and more fragile to the extent that a small disruption in any of its component elements, such as suppliers, manufacturers and customers, can break the entire chain. Thus, organisations

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should be mindful of the risks involved and therefore try to mitigate these by taking into account supply chain planning when making critical strategic decisions within the value chain (Kumar, 2010:28).

Supply chain planning at SGD starts with a business case being presented by Marketing & Sales; hand over to the Programme Office then occurs after contract negotiations relating to time and value have concluded. The SGD business context relies heavily on a multi-project organisation for contract execution. The time between the marketing and sales activities to final delivery can be anything from one to five years; thus supply chain planning needs to take place at the strategic level in order to produce a consolidated business plan. Accordingly, this should result into one procurement and manufacturing plan.

Mishra (2010:42) asserts that

… the objective of implementing supply chain management is to reduce inventory level, increase customer satisfaction and build competitive advantage to create customer value. Supply chain management presents an integrated approach to resolve issues in sourcing, customer service, demand flows and distribution. The results derived by applying SCM are: (1) reduced operational costs; (2) improved flow of supplies; and (3) reduction in delays in distribution and increased customer satisfaction.

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39% 40% 37% 35% 30% 25% 20% 13% 15% 11% 10% 5% 0% 0% Not at all Very little Somewhat Great extent Very great extent . Figure 5.9: Interdepartmental collaboration – V4a

Figure 5.9 depicts the internal collaboration between the departments within the supply chain management process, such as Procurement, Production, Project Office, Marketing and so on. Only 13% of the respondents strongly agreed that interdepartmental functions collaborate well to support the business planning. This compares to almost half (48%) of the respondents that are of the view that collaboration occurs to a very small extent to none at all at SGD. About 39% of the respondents somewhat agree that this is done well.

The interdepartmental collaboration variable 4a confirms the lack of collaboration within the organisation. As a result, the organisation is not flexible or agile enough to deal with the ever-changing demands made on the supply chain system. The literature reviewed indicates that firms that are more adaptable, flexible, fast, aggressive and innovative are better positioned not only to adjust to a dynamic, threatening and complex external environment, but also to create change in that environment (Morris et al., 2008:8). Therefore, it can be reasoned that a lack of collaboration contributes to providing the customers and shareholders with reduced value, taking into account the entire value chain involved in bringing the goods and services into being.

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Certain elements of the value chain will be negatively affected by lack of interdepartmental collaboration such as customer delivery performance, customer satisfaction, budget overrun, time to market, and, lastly, increased operational costs. In chapter 4, the data collected from the company ERP system confirms the lack of collaboration. Accordingly, delivery precision for Procurement [source] is indicated as 69.7%, and Production [make] delivery precision is indicated as 43%, while for the Programme Office customer delivery precision is indicated as 69.8%. It can thus be deduced that through better collaboration, both individual performance and overall delivery performance can be improved.

One of the secondary objectives of this research study was to assess internal collaboration interfaces within the integrated supply chain system, that is, cross- functional structures. This objective seeks to evaluate the shortfalls in collaboration and encourage better internal interfaces within the context of internal organisational cooperation and external organisational cooperation. It can therefore be confirmed that collaboration within the company in terms of existing structures is lacking. Only 13% of the respondents are convinced that collaboration is done well and this is supported by the Key Performance Indicators (KPIs) of the core supply chain functional areas, Production, Procurement and Programme Office. Further, the Winning Business process does not allow or encourage sufficient collaboration between functional areas; the process structure is of a silo type that is project oriented rather than operations oriented.

Improved communication and information flow between departments plays a major role in achieving common goals. These goals include in excess of 90% delivery precision, less than 4% component parts defects, reduced lead-time from nine to six months or better, and the achievement of an overall budget project margin of 30% or better. The literature gives guidelines for what firms should be doing to promote internal collaboration. The overall goal of providing superior customer service is jeopardised by failings in cross-functional collaboration; while regression analysis suggests that up to 10% of the variance in customer service can be explained by the sequential impact of a

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failure in reward systems, interdepartmental relations and so on. This presents significant managerial implications (Van Hoek & Michelle, 2006:271).

34% 35%

30% 26%

25% 21%

20% 16% 15%

10%

5% 3%

0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.10: Involvement of Production and Procurement in the tendering process – V3a

The above figure indicates the respondents’ views on the involvement of Production and Procurement in the tendering process. Only 50% of the respondents strongly agreed that Production and Procurement are involved in the tendering process. This opinion is balanced with 29% of the respondents strongly disagree that the involvement of Production and Procurement in the tendering process, through the Programme Office, is done to a very small extent to not at all. The rest of the respondents (21%) somewhat agreed. The importance of this variable is that it shows the gap in collaboration when the three departments are not synchronised. Accordingly, about one-third of the respondents believe that there is no synchronisation between the core supply chain functional areas.

This is important in that the commitments that are agreed to by the Programme Office, in support of the contract negotiations, are carried out by Procurement and Production during the execution phase. Therefore, it should be a given for Procurement and

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Production to be involved in the tendering process and the respondents should not have to question whether this is done ‒ the majority of respondents should be convinced that this is done and this is not the case at SGD.

The result of variable 3a supports the previous variable 4a on interdepartmental collaboration. The three major functional areas that make up the internal supply chain of a manufacturing enterprise: purchasing (source), manufacturing (make), and sales and distribution (deliver) should operate like a ‘well-oiled machine’ to bring about value to both customers and shareholders. The literature reviewed points out that that tight cooperation is required between these three functions for effective manufacturing planning and control to take place. Considered independently, purchasing is mainly concerned with minimising material costs, manufacturing with minimising production costs sales with selling for the greatest amount and distribution with minimising distribution and warehousing costs (Jacobs et al., 2011:28). The organisation should therefore consider the common performance measure and targets that cut across the supply chain processes.

5.4.3 Strategic sourcing: supply chain planning data analysis: Part A

29% 30% 24% 25% 21% 18% 20%

15%

10% 8%

5%

0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.11: Key suppliers as an extension to SGD – V10a

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Only 37% of the respondents strongly agree that SGD view key suppliers as an extension of the organisation; 39% of the respondents, on the other hand, are of the view that this is done to a small extent or not at all at SGD in support of external supply chain collaboration. About 24% of the respondents are somewhat convinced that this is done adequately. The striking fact about the data presented here is that there are more respondents that believe SGD does not view its key suppliers as an extension of the company than those that believe that this is done. The gap between the two opinions is not big, which means that opinions are split. This can be interpreted as the company not having a clear management strategy that addresses the strategic sourcing direction.

The significance of this variable is that it refers to the second secondary objective of this research study, that is, to review the challenges of strategic sourcing within the military defence manufacturing organisation. This objective will help to explain the benefits and challenges presented by outsourcing, which is linked to manufacturing planning improvement. The literature reviewed reminds us that horizontal collaboration can help to identify and eliminate hidden costs in the supply chain that everyone pays for by allowing joint product design, sourcing, manufacturing, and logistics (Langley et al., 2009:116). Companies have found that by collaborating closely with their supply chain partners, new avenues for competitive advantage can be uncovered (Ross, 2011:3). From the above discussion, it is clear that SGD does not have a clear-cut strategic sourcing strategy.

The result of this variable shows the extent to which the company is ready to collaborate with external key suppliers where possible. Issues of trust and reliability can be dealt with in the strategy formulation. The company should be in a position to take a decisive stand on an external collaboration approach in order to guide and direct the behaviour of the supply chain. However, the literature reviewed argues that about 47% of firms are working towards integration within the walls of their own firms and that approximately 34% of firms focus their integration efforts on purchasing and first-tier suppliers. Beyond that, there is little attempt at integration (Ballou, 2006:381).

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Reports of real-world practice show that supply chain collaboration brings benefits for all participating members. Under continuous replenishment programmes, Procter and Gamble controls the stock management for its retailers and receives information about retailer inventory levels and demand conditions. From the time when Procter and Gamble was able to gain as a better idea of actual customer demand, it experienced a 5% increase in perfect orders, less variability in retailer orders, and reduced delivery expenses by being able to utilise cube space in transit. Meanwhile, its retailers reaped benefits such as an increase of over 100% in inventory turns, inventory levels were significantly reduced, service levels increased, retail sales went up 2%, and storage and handling costs were reduced (Simatupang et al., 2004:3).

45% 41% 40% 35% 30% 30% 25% 20% 14% 14% 15% 10% 3% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.12: SGD sharing sensitive information with key suppliers – V12a

Figure 5.12 depicts that only 17% of the respondents are of the strong opinion that the company shares sensitive information with its key suppliers, as opposed to 44% of the respondents who are of the opinion that the company does very little or nothing at all to share sensitive information with its key suppliers. The other 41% of respondents somewhat agree that the company does share sensitive information. Figure 5.12 variable 12a supports the previous figure 5.11 variable 10a in a way that most of the respondents believe that the company does not share sensitive information with the key

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supplier and therefore close collaboration is not encouraged or supported during the development, sourcing and manufacturing phases.

Lack of sharing sensitive information with key suppliers is supported by figure 5.13 below, which indicates that 63% of the respondents strongly believed that key suppliers for SGD are not involved in the early stages of product development, with only 19% of the respondents strongly agreeing that SGD involves key suppliers in the early stages of product development. The literature reviewed indicates that more than half (51%) of disturbances in production planning can be attributed to the supply chain owing to the reliance on the supplier delivery performance (Barroso et al., 2010:168).

Collaborative planning, forecasting and replenishment (CPFR) is a tool used to enhance the supply chain; it that should optimally yield lower inventories and logistic costs and create efficiency for all participants in the supply chain. CPFR uses cooperative management to share key information about the supply chain between suppliers and retailers (sellers and buyers) who work together to satisfy the needs of the end customer. Over 300 companies have implemented the model and numerous case studies show inventory reductions of 10 to 40% across the supply chain and improvements of in-stock products by 2 to 8% (Toiviainen & Hansen, 2011:3).

45% 41% 40% 35% 30% 22% 25% 19% 20% 14% 15% 10% 5% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.13: Key suppliers involved in the early stage of product development – V14a

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The importance of 14a variable lies in the preparedness of the company to involve the key suppliers in the early stages of development and to share risks with the supplier to improve supplier performance and delivery targets. On the other hand, in a different variable 17a, about 58% of the respondents strongly agree, in general, that the performance of the suppliers will improve if suppliers were to be given sales forecast orders in advance to plan and support SGD on its delivery performance. Only 8% of respondents do not believe that this will improve supplier performance. The literature reviewed insists that there is growing and persuasive evidence that understanding and managing market demand are central determinants of business success. Aside from this observation, relatively few companies have successfully linked demand management to corporate strategy and, in turn, to supply chain strategy (Langley et al., 2009:235).

In addition, Borade and Bansod (2007:114) and Toiviainen and Hansen (2011:3) acknowledge that CPFR is a strategy for overcoming barriers through joint planning, joint decision making and the development of a clearer understanding of the supply chain replenishment process in order to achieve some of the promised benefits of actual supply chain integration. It is clear that from the above discussions strategic sourcing is a challenge at SGD and needs to be improved.

A considerable amount has been written documenting the integration of suppliers in the new product development process. The involvement of suppliers can range from giving minor design suggestions to being responsible for the complete development, design and engineering of a specific part of the assembly. This practice can be attributed to the fact that suppliers accounted for approximately 30% of the quality problems and 80% of product lead-time problems (Chen & Paulraj, 2004:140). Chen and Paulraj (2004) further explain that more purchasing professionals are now trained in cross-functional areas and strategic elements of the competitive strategy. Purchasing thus selects the right type of relationship with its suppliers and supplier relationships are strategically managed, and purchasing performance is measured in terms of contributions to the firm’s success (Chen & Paulraj, 2004:140).

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5.4.3.1 Supply chain planning conclusion: Part A

It is clear that SGD is faced with a challenge when it comes to setting and communicating a clear supply chain management planning strategy. It is therefore clear that there is a lack of collaborative planning between the interdepartmental supply chain functional areas, namely, the Programme Office, and Design, Procurement and Production. This also extends to external collaboration with key suppliers.

This situation negatively affects the efficient functioning of the supply chain processes, such as planning, designing, sourcing, making and delivering products to customers. This, in turn, results in poor manufacturing planning and consequent poor delivery performance. As described, this affects the tendering process where close collaboration needs to take place between Production, Procurement and the Programme Office in responding to commitments in terms of quality, delivery time and cost.

The results of the survey reveal that SGD is not yet ready to integrate fully with the suppliers or to formulate a clear sourcing strategy with key suppliers. This is due to the sensitive nature of the information to be shared with the suppliers, which may limit the supplier relations that need to be maintained in the long term. It is important for SGD to create an environment in which the source of supply, which includes vendors, is responsive and sensitive to the demands of customers and shares risk in a collaborative manner.

Supply chain planning needs to be at the strategic level to plan across all projects for the consolidated business plan; therefore, this should result in one design, procurement and manufacturing plan. Alignment or integration of key strategic suppliers is crucial for SGD. However, SGD should guard against having a supply chain that is leaner and more fragile to the extent that a small disruption in any of its component elements, such as supplier, manufacturer and customer, can break the entire chain (refer to Appendix C).

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5.4.4 Manufacturing data analysis: Part B

43% 45% 41% 40% 35% 30% 25% 20% 15% 8% 8% 10% 5% 0% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.14: Disconnect between the manufacturing planning and supply chain planning – V4b

Figure 5.14 indicates that 51% of the respondents strongly agree that SGD is experiencing a disconnect between manufacturing planning and supply chain planning. On the other hand, 8% of the respondents are of the view that there is very little disconnect. The remaining 41% of respondents also agree that there is somewhat of a disconnect between manufacturing planning and supply chain planning. Variable 4b collaborates the proposition of this research study that there is a disconnect or misalignment between manufacturing planning and supply chain planning at SGD. It is important to note that not one of the respondents strongly disagreed with the proposition of this study.

It is vital that all the supply chain management functional areas within the value chain understand the cost drivers and also understand the approach required by the strategic direction of the organisation. It is true that, apart from Procurement and Production, functional departmental areas such as Design, Programme Office, Product Management, Sales and Marketing also play a huge role in supply chain management in order to achieve the business targets of delivering on time and on budget. The direct link between supply chain management and manufacturing planning can be established in

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the poor delivery performance of 43% product delivery on average in 2011 for the SGD manufacturing domain. The literature reviewed reminds us that supply chain management aims at the integration of business planning and at balancing supply and demand across the entire supply chain. It tries to bring suppliers and customers together in one concurrent business process, while spanning the entire chain from initial source to the ultimate customer (Omta et al., 2001:3).

Awad and Nassar (2010:1) assert that “companies searched for new business paradigms that would lead to competitive advantage. Just in Time (JIT), Supply chain Management (SCM), Theory of Constraints (TOC) and Total Quality Management (TQM) are examples of strategies that helped companies to improve production processes, reduce costs and successfully compete in a variety of business environments”. For SGD, the Winning Business process model and the Execute Business process should be complementary to the supply chain strategy in order to encourage collaboration across all functional areas.

Many downstream firms had rationalized their supply base to a smaller number of preferred suppliers with whom closer relationships might be built. But this typically involves trade-offs with risk and flexibility in the supply chain. For example, Precision Components Ltd had reduced their number of suppliers but guard against over-reliance by ensuring that no supplier dedicates more than 10‒15% of its capacity to them. Many downstream firms have also initiated training, problem-solving and supply chain improvement programs with preferred suppliers, realizing that, to have a greater impact on performance, it is important to look beyond the boundaries of the firm. The Supplier Development Manager of Diesel Engines Ltd explained that: […] if we made internal lead-time savings of 20%, the customer probably wouldn’t even notice […] but if this happens across the supply chain then they would start to see a difference (Stevenson & Spring, 2009:956).

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60% 53%

50% 37% 40%

30%

20% 8% 10% 3% 0% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.15: Direct link between manufacturing planning outcomes and supply chain management – V7b

Figure 5.15 above indicates that 90% of the respondents strongly agree that there is a direct connection between manufacturing planning outcomes and supply chain management. Only 3% of the respondents are of the view that there is very little connection. The rest of the respondents also agree that there is somewhat of a connection between manufacturing planning outcomes and supply chain planning.

This confirms the literature reviewed which states that supply chain management differs significantly from classic material and manufacturing control in four respects. Firstly, it views the supply chain as a single entity rather than relegating fragmented responsibility for various segments in the supply chain to functional areas such as purchasing, manufacturing, distribution and sales. Secondly, the distinctive feature of supply chain flows directly from the first: it calls for – and in the end, depends upon – strategic decision making. “Supply” is a shared objective of practically every function of the chain and is of particular strategic significance because of its impact on overall costs and market share. Thirdly, supply chain management provides a different perspective on inventories, which are used as a balancing mechanism of last, not first, resort. Lastly, supply chain management requires a new approach to systems: Integration, not interface, is the key (Houlihan, 1984:101).

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45% 45% 40% 35% 30% 21% 25% 18% 20% 13% 15% 10% 3% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.16: Manufacturing planning is done well at SGD – V10b

Only 21% of the respondents strongly agreed that manufacturing planning is done well at SGD. By contrast, 34% of respondents are of the opinion that manufacturing planning performance is done well to a small extent or not at all. The remaining 45% of respondents somewhat agreed that manufacturing planning is done well at SGD. This is significant as it supports the notion that poor manufacturing planning is a direct result of a dysfunctional supply chain management approach at SGD. Planning for manufacturing should be derived from an integrated supply chain planning strategy in order to ensure constant delivery performance as expected by customers.

Literature affirms that ERP systems enable decision makers to carry out a comprehensive analysis of the business plan, to achieve better communication in the company and to improve cooperation and interaction between various departments. Through the options for simulating activities and through the flexible and dynamic nature of applications, organisations can make plans for forecasting and assessment and for identifying trends in the industry into which the company falls in, qualitative analysis, integration with new technologies of e-business and online communication (Hotăran & Horga, 2011:242). SGD should be in a position to employ some of these techniques, as

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integrated into the Qmuzik ERP system, in order to improve manufacturing planning in the supply chain.

An effective supply chain will support ERP in terms of which manufacturing planning begins with the use of detailed transactional databases obtained from marketing, finance, production and distribution. These, in turn, are used as the basis for long-range forecasting and decision making. The strategic business plan developed from the process is then used as a framework for determining the goals and objectives for the marketing and sales, finance, engineering, production, and logistics departments. An ERP system automatically integrates and translates these business plans into a common language that each department is able to use in order to define its own set of performance objectives. Sales and operations planning (S&OP) enables the business to build consensus teams of sales, operations, finance, and product development around the corporate strategy and to enable continuous strategy revision (Ross, 2011:85).

33% 35%

30% 25% 22% 25% 20% 17% 15% 10% 3% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.17: MRP is not designed to adequately support engineering changes – V8b

Figure 5.17 depicts that 47% of the respondents strongly agree that the MRP system does not adequately support engineering changes in the engineering-to-order environment versus the make-to-stock environment. Meanwhile, only 20% of the

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respondents are of the view that the MRP system adequately supports the engineering changes at SGD. The rest of the respondents also somewhat agree that MRP does not adequately support engineering changes at SGD.

The literature reviewed points out that a search for new manufacturing philosophies and methods to automate shop floor control, and optimise scheduling and integrate it more closely with demand planning has been at the core of today's systems approach to manufacturing. Fundamental to achieving shop floor management goals is the ability to track production in real-time. For over a decade, Manufacturing Execution Systems (MESs) have attempted to fill in this gap in shop floor management (Ross, 2011:224).

SGD should consider an advanced planning system (APS) that replaces production planning in ERP systems, as ERP systems cannot take into account the production capability (engineering resources might be needed in the engineering-to-order environment), and material supply (material obsolescence considerations) at the same time. After the APS system has been introduced, it will help to adjust the results of production planning and material planning, preventing the waste of time that occurs when regulating the planning personnel (Chen et al., 2012:4793).

When the ERP system proceeds with the material planning, it gathers the material demands as an output and is unable to react easily in the face of a modified order, thus increasing the cost of the storage. APS systems draw up the required purchase order according to the order, thus preventing the traditional MRP gathered planning results, lowering the cost of storage and increasing the visibility of the production plan execution (Chen et al., 2012:4793). The ERP system can also be supplemented by other management tools such as Visual Management or Kanban to maintain focus and improve shop-floor resource planning for agility and flexibility. The visibility of material shortages can be advantageous in expediting what is critical for delivery in monthly buckets of periods; this also sets priorities for procurement in expediting in accordance with urgent priorities resulting from changes.

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5.4.4.1 Manufacturing planning conclusion: Part B

The majority of the respondents felt that the organisation was experiencing a disconnect between manufacturing planning and supply chain planning, with just 8% of respondents having a different view on this. It is clear that SGD is experiencing misalignment between manufacturing planning and supply chain planning.

As a result of this disconnect, integrated business planning is compromised as is the balancing of supply and demand throughout the supply chain. Common goals such as delivering on time and within cost are also compromised due to poor manufacturing planning that is not linked to grand supply chain planning strategy. This can be substantiated by poor manufacturing delivery performance in 2011 which averaged 43% for the year.

Although there are overarching business management processes in the company, these are not integrated, but rather concentrate on different functional areas of the business. The Winning Business process covers Marketing and Sales, while Executing Business entails the Programme Management functional area. Winning Business and Executing Business should be closer to each other. In addition the functional areas in the Executing Business process, such as Procurement, Production and the Project Office, could work together even more closely.

It is clear that MRP is not adequate for an engineering-to-order environment. Therefore, a need exists to supplement the planning tool with other tools such as APS which take production capacity (including engineering resources) into account. This will help to adapt changes to both the material and the resource plans, because MRP cannot adapt to changes quickly enough, resulting in a waste of resources and material.

The majority of the respondents are in agreement with the literature that supply chain planning has a direct effect on manufacturing planning. When supply chain planning is

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improved this also improves manufacturing planning – the two variables are directly proportional to each other.

5.4.5 Influence of product design engineering analysis: Part C

39% 40% 35% 30% 24% 25% 18% 20% 16% 15% 10% 3% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.18: Engineering orders impact on excess stock implications – V1c

Figure 5.18 indicates that 57% of the respondents strongly agree that engineering orders to change the manufacturing baseline have an influence on excess stock at SGD. Only 19% of the respondents believe that engineering orders have a little to no implications for excess stock. The rest of the 24% respondents also somewhat agree that engineering orders have an influence on the excess stock at SGD. The significance of this variable is that proper controls on engineering changes can reduce excess stock at SGD – with most of the respondents agreeing with this view.

The above respondents agree that inventory build-up at SGD, which is depicted by the days-in-stock of 512 days and a R47 million excess stock value, is as a result of baseline changes that are separate from minimum order quantities and low sales level. SGD is governed by the engineer-to-order environment, which is somewhat different from the make-to-order case confirmed in this research study. In the make-to-order environment, engineering determines what materials will be required on the basis of the

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customer requirements. Consequently, when that changes demand, misalignment occurs in the manufacturing planning and leads to overproduction, redundancy, cancellations and over-ordering.

Planning for stock using a fixed quantity model such as a Qmuzik ERP system within an established reorder level, introducing uncertainty into the analysis of how to replenish stock and how much stock to be replenished is a challenge in a changing environment (engineering-to-order), which will result in inconsistency in the replenishment policy that will result in invalid orders processed for stock. Despite the cost of carrying stock implications and balance sheet implications, the issue of poor customer service should be at the top of the management agenda for improving the situation. (Langley et al., 2009:348, 364).

Management can reduce excess stock and minimise disruption in the manufacturing cycle by following the recommendations by the USA Department of Defense (DOD) best practice in standardising the way manufacturing risks are managed. The DOD recommends the use of Manufacturing Readiness Levels (MRLs), refer to Appendix I, to support the assessment of manufacturing risk to minimise changes on the line that disrupt both procurement plans and capacity plans during the manufacturing process. General Electric Aviation requires strong management involvement at each gate, along with decision reviews to determine if enough knowledge is available and risk-mitigation plans are in place to proceed or if actions to address and mitigate manufacturing risks can show a viable way forward. This allows management to resolve problems rather than pass them on to the next phase. Both the senior leadership team and the product leadership team generate the product idea and assess the need for the project. They provide the linkage between the business strategy and the project and develop the high- level project strategy. They identify any new product material or manufacturing processes and begin to develop a risk-reduction strategy for these issues. By the time the product enters the preliminary design phase, senior leadership and project teams agree on the approach to the project. At this time, product directors must have a

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manufacturing plan in place in order to identify how they are going to achieve manufacturing readiness (United States Government Accountability Office, 2010:26).

The warfighter-protection programme ‒ the next generation of helmets and body gear ‒ reported that it was able to reduce scrap by 60% and reduced touch labour by 20 to 40%. On programmes where cost benefits could be roughly calculated, the Army believes that MRLs (Appendix I), among other improvement initiatives, contributed to the $426 million in benefits on seven programmes (United States Government Accountability Office, 2010:22).

34% 34% 35%

30%

25%

20% 13% 13% 15%

10% 5% 5%

0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.19: Product design seeks to minimise unique parts – V3c

Only 18% of respondents strongly agreed that product design seeks to minimise unique parts during the design and development phases of the product life cycle. A reasonable number of respondents (about 47%) believe that the organisation seeks to minimise unique parts to a small extent to not at all. On the other hand, about 34% of the respondents agreed somewhat with this view.

One way to address manufacturing planning and improve production efficiency is to limit the size of the product range – a limited product range versus a wide product range. A

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standard offering could be considered based on the concept of product standardisation, using similar product baseline modules rather than always designing for new and better functionality. This may, however, be challenging in an innovative company that seeks to come up with cutting-edge technology and be steps ahead of the competitors. The value derived from standardisation thus needs to be balanced against the benefits of increased production efficiency, effective procurement planning and market needs, in terms of functionality, cost, quality, maintainability and delivery performance.

The organisation can develop a manageable number of alternative modular service offerings to be adapted to individual customer situations and needs. A further step is to take the close relationship characteristics into consideration and develop a joint improvement agenda together with the customer to develop optimum operative efficiency within the constraints set by the objectives that important for the customer. If a joint improvement agenda is implemented that has involved good cooperation, high customer satisfaction will follow (Zailani & Rajagobal, 2005:379).

McLeod & Mandelbaum (2010:14-15) advocates the development of designs that minimise the number of unique or specialised parts used in a system in order to reduce the logistics footprint and lower total ownership cost. This can be done by streamlining the selection of preferred or commonly used parts typically described by non- government standards, military standards, or parts already in use. He further advises that organisations should 1) flow down parts requirements to suppliers to assure quality and manage obsolescence and to ensure parts management is adequately reflected in system engineering policy and guidance; 2) exploit parts management as a positive contributor to manufacturing readiness; 3) build on the parts management relationship to ensure reliability, availability and maintainability (RAM); and 4) conduct outreach on the importance and benefits of a proactive parts management approach. These are good sound principles that SGD could tailor and apply.

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50% 46% 45% 40% 35% 27% 30% 25% 20% 14% 15% 11% 10% 3% 5% 0% Not at all Very little Somewhat Great extent Very great extent

Figure 5.20: SGD conduct thorough production readiness reviews – V7c

Figure 5.20 above results supports the 8c variable outcome, in the research questionnaire page 162, in that only 17% of the respondents strongly agree that the organisation conducts thorough production readiness reviews (PRR), refer to Appendix J. In contrast, 38% of the respondents are of the opinion that PRRs are done to a small extent to not at all. The rest of the respondents (46%) are of the opinion that PRRs are only done somewhat at SGD. Variable 8c refers to the extent of product maturity released in the production line and confirms that the manufacturing readiness level process stated in this study should be considered as being a vital input in manufacturing planning.

As stated above manufacturing readiness levels (MRLs) depicted in Appendix I can also be used to define manufacturing readiness and risk. The manufacturing maturation plan identifies manufacturing risks and provides a plan for mitigating each risk area throughout the duration of the technology or product-development programme. Accordingly, MRL assessments are intended to leverage better manufacturing knowledge, enabling managers to be aware of problems or risks early in development when they are easier to resolve and before significant investments are made. In turn,

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these risks can be addressed earlier in the life cycle when costs are lower (United States Government Accountability Office, 2010:21).

5.4.5.1 Influence of product design conclusion: Part C

The results provide solid evidence that design changes influence excess stock at SGD. This is coupled with the inadequate application of the MRP system that does not adequately cater for changes or adapt quickly enough to new changes in resource planning and material planning. Only 19% of the respondents are not in agreement with the above assertion but the majority of the respondents agrees with it.

An engineering-to-order environment allows customers to make changes during production and also allows design enhancements to be implemented during the production phase to enhance product performance or safety. Flexibility is therefore an essential ingredient as well as a competitive advantage for an organisation that competes globally in the selling of high-tech defence products.

Management can reduce manufacturing risks by following the recommendations of the US DOD best practice in standardising the way manufacturing risks are managed. The DOD recommends the use of MRLs to support assessment of manufacturing risk in order to minimise changes on the line that disrupt both the procurement plan and the capacity plan during the manufacturing process

Management can also minimise the number of unique or specialised parts used in a system to reduce the logistics footprint and lower the total ownership cost by streamlining the selection of those preferred or commonly used. Only 18% of the respondents agreed that SGD seeks to minimise unique parts during the design and development phases of the product life cycle. Also PRRs can help to mitigate the risk if done diligently. Only 17% of the respondents strongly agreed that the organisation conducts thorough PRRs. It is clear that product maturity levels (manufacturing readiness) are not extensively reviewed when products are about to be released in the

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production line. Accordingly, MRL assessments are intended to leverage better manufacturing knowledge, enabling managers to be aware of problems or risks early in development when they are easier to resolve and before significant investments are made.

5.4.6 Improved competitive advantage data analysis: Part D

29% 39% 34% 30% 24% 24% 40% 25% 30% 20% 13% 16% 15% 11% 20% 8% 10% 10% 3% 5% 0% 0%

Figure 5.21: Excess stock reduction – V2d Figure 5.22: Delivery performance improvement – V1d Supply Chain Statistics: 25-60% Supply Chain Council Statistics: 16-28%

27% 30% 24% 24% 40% 34% 34% 25% 16% 30% 20% 18% 15% 8% 20% 10% 8% 5% 10% 5% 0% 0%

Figure 5.23: Forecast accuracy improvement – V4d Figure 5.24: Lead Time reduction – V3d Supply Chain Council Statistics: 25-80% Supply Chain Council Statistics: 30-50%

The Supply Chain Council provides empirical evidence that most companies and organizations can realize competitive benefits from improved SCM such as 16-28% delivery performance, 30-50% lead time reduction, 25-60% inventory reduction and 25- 80% forecast accuracy.

The above statistics are compared with the expert opinions of the respondents through the research survey. The findings of the respondents indicate the extent of the

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competitive advantage that could be achieved by the organization and also improvement of the organizational performance. The most optimistic group (mode) from the respondents will be analyzed and compared to Supply Chain Council statistics. Figure 5.21 indicates that 29% (most common view) of respondents believe that excess stock can be reduced by as much as 61-81%. This performance element can translate into a R29m-R38m reduction of excess stock to R18-R9m from R47m if the supply chain management is improved. This improvement gives the organization an improved asset utilisation ratio and also a stock turnover ratio will improve hence stock will be consumed at a faster rate in production. This is a more optimistic view as compared to the Supply Chain Council statistics of 25-60%.

Figure 5.22 shows that respondents are more optimistic about the outlook of the organization, as compared to the Supply Chain Council statistics, if the supply chain management can be improved. Most of the respondents about 39% believe that the delivery performance can improve between 81-100% if the supply chain management is improved. The significance of this element is that, the respondents believe that the 43% internal delivery precision can be improved from 78-86% delivery performance if the supply chain management is improved.

Figure 5.23 indicates the 27% (most common view) respondents believe that forecasting accuracy can be improved by 81%-100%. Order intake forecast accuracy provides improved demand management and also provides stability and predictability in the manufacturing plan. This element can be translated into 72%-80% demand forecast accuracy improvement from a 40% accuracy base. The outcome of this improved supply chain process element contributes to better manufacturing planning and also better inventory management and also procurement consolidation benefits for SGD.

Figure 5.24 indicates that 34% (most common view) respondents believe that reduction in lead time can be improved by 81-100%. This improvement can be interpreted as improvement of 9-12 months lead time to improved performance of 4-6 months lead

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time. This improvement will yield a better cash conversion cycle time. When the organization delivers quicker than the current norm, the quicker will be the collection time from the customers resulting in better cash flow improvement. This improvement will also increase the ability of the organization to meet customer’s requirements of reduced lead time of 4-6 months required in the marketplace.

5.4.6.1 Competitive advantages conclusion: Part D

The significance of the data collected in this section shows that the respondents believe that delivery performance, excess stock, lead times and forecasting can be significantly improved by up to 100% by improving the supply chain. The views of the respondents are more optimistic as compared to the Supply Chain Council research cited in Supply Chain Council (2011:26) in terms of the statistical research outcome indicated above. It would seem that respondents have a strong belief that an improved supply chain can yield economic benefits for the organisation with improved value chain performance (Slone et al., 2010:4).

The KPIs that are employed to manage the overall performance of the organisation are essential in guiding the expected outcomes. What is measured gets done by the personnel within the value chain in the respective supply chain functional areas. As a result of supply chain improvement, the organisation may benefit in terms of overall improved performance in the nine areas identified by the Supply Chain Council as reference measurement metrics: Perfect Order Fulfillment, Order Fulfillment Cycle, Supply Chain Flexibility, Supply Chain Management Costs, Cost of Goods Sold, Cash- to-Cash Cycle Time, Return on Supply Chain Fixed Assets and Return on Working Capital. The total supply chain has an impact on revenue, expenses, working capital and fixed capital. This is pulled through to the creation of shareholder value through profits and the efficient utilisation of capital employed (Supply Chain Council, 2011:5).

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5.4.7 Summary descriptive statistics: Parts A, B, C and D

The table below indicates the research data analysed using descriptive statistics. Table 5.2: Scale index for supply chain planning: Part A internal perspective

Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree

The role of supply chain planning 1a in strategy formulation is seen as 38 3.24 3 0.97 16% 42% functional input into the process.

The inability to measure the real contribution of supply chain planning on strategic outcomes 38 3.61 4 0.92 8% 55% 2a is an inhibiting factor in accepting its role in strategic planning. There is strong consensus that procurement and production 3a should be involved in the 38 3.34 4 1.12 29% 50% tendering process through the programme office. Our internal interdepartmental functions such as project office, design, marketing, production, 38 2.55 3 0.86 48% 13% 4a procurement etc. collaborate well to support business planning. Our forecasting tool for demand planning is adequate to support 38 2.87 4 1.04 34% 34% 5a business objectives such as on- time delivery within budget. The organisation has a consolidated responsibility to specific individual or department 6a functions to manage the supply 38 2.87 3 1.12 34% 34% chain at the highest company level.

It is clear that most of the respondents are of the view that supply chain planning is considered when the company formulates its business strategies. In spite of this opinion, it appears that most of the respondents strongly agree that the inability to measure the real contribution of supply chain planning to strategic outcomes inhibits supply chain planning in being accepted as a big part of strategic planning. This is supported by mode 4 which interprets the common view of the respondents. Although most of the respondents are of the view that supply chain planning is a functional input to strategic

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planning at SGD, almost half of the respondents have indicated that internal supply chain collaboration is not done well at SGD to support business planning. This is supported by the split view of the respondents when asked if supply chain responsibility is consolidated in a specific individual or department. This means there is a lack of clarity or insufficient information for the respondents to make a clear assessment as to whether there is a clear line of authority from the highest level of the organisation responsible for the supply chain.

Again, the divided opinion with regard to the forecasting tool shows an inability to form a strong opinion on this issue. Consequently, this indicates the lack of clarity on the existence of such a tool and its usage within the business. It is difficult to predict and forecast the markets in the defence industry because most of the projects are classified and there is limited information to make a calculated guess in the future. Even though this is the case, a tool should be available for scenario planning as an input for advance supply chain planning based on the strategic direction and business plan.

Table 5.3: Scale index for strategic sourcing: Part A external perspective

Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree Our key suppliers are managed in a 7a more formalised and monitored 37.00 3.19 4 0.91 25% 43% context.

We expect our relationship with key 38.00 3.79 4 0.93 8% 68% 8a suppliers to last a long time.

Supplier relations management plays 9a an integral role in the strategic 37.00 3.76 4 1.06 16% 62% sourcing function.

We view our key suppliers as an 38.00 2.87 4 1.26 39% 37% 10a extension of our company.

The Supplier Relations Management 11a function has a formal written positive 35.00 2.71 3 1.10 40% 26% long-range strategy for collaboration.

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Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree

We share sensitive information with 37.00 2.62 3 0.98 44% 17% 12a our key suppliers.

We have planning committees/task 13a forces on key issues with key 36.00 2.67 3 1.04 44% 22% suppliers.

Our key suppliers are involved in the 37.00 2.41 2 1.14 63% 19% 14a early stage of product development.

Outsourcing can play a role in the South African context to support 38.00 3.47 4 0.89 13% 55% 15a internal supply chain functions such as PCB manufacturing.

There is a consensus that the buying power in volumes and rand inhibits 37.00 3.51 4 1.10 22% 57% 16a the organisation from negotiating better terms with the suppliers.

Our suppliers can perform better if 17a given an opportunity to view our 38.00 3.61 4 0.89 8% 58% sales forecast orders in advance.

Table 5.3 above indicates that 68% of the respondents strongly believe that the organisation expects relationships with its suppliers to last a long time. In this context; after-sales maintenance in the defence industry for any equipment sold is expected to last for up to 25 years. Therefore, about 62% of the respondents strongly agree that supplier relations management plays an integral role in strategic outsourcing in terms of maintaining the relations for a number of years. However, 39% of the respondents strongly believe that the organisation does not view its key suppliers as an extension of the organisation.

By the same token, 44% of the respondents strongly believe that the organisation is not prepared or ready to share sensitive information with key suppliers. In addition to this, about 63% of the respondents are of the opinion that we do not involve key suppliers in the early stages of development. This may limit supplier relations which need to be maintained in the long term. However, 55% of the respondents strongly believe that outsourcing can play a role in the South African context to support internal supply chain

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functions such as printed circuit board (PCB) manufacturing. In order for the organisation to leverage the advantages of outsourcing, the perception of the way in which the organisation views its key suppliers will have to change.

About 58% of the respondents strongly believe that the key suppliers’ delivery performance can improve if those suppliers are given an opportunity to view sales forecast orders in advance to support the replenishment plan. Supplier performance and outsourcing performance outcomes are threatened by the minimal buying power of the organisation, hence the low volume buying. This is a result of competing with big companies in the sourcing competitive space, such as Airbus, Boeing, BAES, and suchlike. Table 5.4: Scale index for manufacturing planning: Part B

Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree Operational excellence programme 1b has the responsibility to improve the 37.00 3.46 4 1.07 16% 59% supply chain. The organisation has a well 2b established stock management 38.00 2.89 3 0.92 26% 26% policy.

MRP system can cater for agility and 3b flexibility. 38.00 2.84 3 1.03 34% 24%

The organisation has been experiencing disconnect between the 37.00 3.51 4 0.77 8% 51% 4b manufacturing planning and supply chain planning approach.

Our organisational structure supports 5b supply chain management 38.00 2.79 3 0.99 34% 26% effectiveness.

Training for personnel to use the 6b ERP/MRP system efficiently is 38.00 4.03 4 1.00 8% 76% needed.

Do you believe that there is a direct link between manufacturing planning 38.00 4.39 5 0.75 3% 90% 7b outcomes and supply chain management?

The MRP system as a planning tool is 8b not designed to support engineering 36.00 3.47 3 1.11 19% 47% changes adequately.

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Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree Do you believe the MRP system should be supported by other 38.00 3.61 5 1.24 18% 58% 9b management tools such as Visual Management or Kanban?

Manufacturing planning is about 10b scheduling, estimating and 38.00 2.76 3 1.00 34% 21% forecasting. Do we do all this well?

Manufacturing planning is supported 11b by business intelligence such as 38.00 2.89 4 1.23 39% 37% accurate forecast inputs.

Procurement planning resulting from 12b manufacturing planning is handled 38.00 2.74 3 0.89 34% 18% optimally.

Shop-floor control is adequate to 13b track work-in-progress and give 38.00 2.89 3 1.13 39% 32% status feedback on the MRP system.

About 59% of the respondents strongly believe that the Operational Excellence Programme has a responsibility to improve the supply chain. This indicates Operational Excellence has direct responsibility and accountability towards the performance outcome of the supply chain within the organisation. Therefore, the lines of authority in the execution and maintenance of the performance should be clarified. About 51% of the respondents strongly agree that the organisation has been experiencing disconnect or misalignment between the manufacturing planning and supply chain planning approach, while 8% only did not share this view.

This confirms the proposition of this research study that, in order to improve manufacturing planning, supply chain planning needs to be improved and these two needs to be in sync with each other. Most of the respondents (89%) strongly agree with the proposition that there is a direct link between manufacturing planning outcomes and supply chain management. Central to the two planning approaches is the internal and external collaboration within the supply chain function areas, as well as the importance of strategic outsourcing which is not the core of the organisation.

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Training for personnel in the efficient use of the ERP/MRP system is needed; approximately 76% of the respondents strongly agreed with this view. By the same token, 24% of the respondents only agreed that MRP as a planning tool can cater for agility and flexibility. In a similar vein, only 19% of the respondents strongly agreed that MRP can support engineering changes adequately. In view of this management should consider supporting the MRP system with other management tools such as Visual Management or Kanban – approximately 58% of the respondents strongly support this view.

Significantly, a reasonable number of respondents (39%) are of the view that manufacturing planning is not adequately supported by business intelligence, including accurate forecasting inputs from supply chain functions such as the Programme Office, and Sales and Marketing. Only 21% of the respondents believe that manufacturing planning and procurement planning are done adequately in contrast to the other 39% who believe that it is not done adequately. This indicates that only a fair number of respondents believe that manufacturing planning and procurement planning are not done reasonably well, but could be improved by improving supply chain integration and collaboration. Similarly, only 18% of the respondents believe that procurement planning resulting from manufacturing planning is done adequately.

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Table 5.5: Scale index for product design influence on supply chain planning: Part C

Std Strongly Strongly Variable Questions Count Mean Mode Deviation Disagree Agree Engineering orders have a big 38 3.55 4 1.06 19% 57% 1c influence on excess stock implication.

Our key suppliers are involved in the 37 2.35 2 0.98 59% 11% 2c early stage of product development.

Our product design seeks to minimise 3c the number of unique or specialised 38 2.63 3 1.05 47% 18% parts in the system.

The organisation adequately ensures that the component management is 4c reflected in the System Engineering 37 2.59 3 0.93 46% 22% Policy for reliability, availability and maintainability.

Part management is adequately managed within system engineering. For example can deal adequately 37 2.73 3 0.99 41% 29% 5c with different manufacturing packages – Lead-Free and Leaded component.

Our organisation maintains and 6c updates adequately a preferred parts 38 2.82 3 1.06 37% 16% list.

The organisation conducts thorough production readiness reviews (PRR) 37 2.70 3 0.94 38% 17% 7c before products are released into the production line.

Our organisation follows basic manufacturing readiness levels 38 2.84 3 0.82 29% 16% 8c criteria for assessing manufacturing maturity and risk.

The majority (57%) of the respondents agrees that engineering orders have a big influence on the excess stock at SGD (currently R47m) as opposed to only 19% who do not share this view. This is supported by the view of 14% of the respondents who strongly agree that product design seeks to minimise the number of unique parts used for product baseline management. Further, only 22% agree with the view that the organisation ensures that component management is reflected in the System

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Engineering Design Policy to ensure the constant reliability, availability and maintainability of components. Similarly, 16% of the respondents believe that the organisation complies with basic manufacturing readiness level criteria for assessing manufacturing maturity and risk as opposed to 29% who strongly believe that this is not done adequately. Moreover, 16% of the respondents strongly agree that the organisation conducts thorough PRRs before products are released onto the production line as opposed to 38% who believe that this not done adequately.

What is significant though is the test of the respondents’ consistency when answering the questionnaire: variable 2c in Part C of the questionnaire was repeated in Part A 14a of the questionnaire and the results do not vary greatly, that is, 59% versus 63%, giving a 4% difference (a difference of 2 respondents). Consequently, what one can say with a fair amount of confidence is that the respondents thought carefully before responding to the questionnaire. What is emerging from this section is that the respondents believe the organisation is not conducting thorough PRRs before products are released onto the production line; this would ensure that manufacturing maturity baseline management is thoroughly implemented to support supply chain planning and manufacturing planning to achieve business targets in terms of customer deliveries and budget commitments. In addition, the wide range of variety in component parts that the design engineers can use should be limited. This is supported by the fact that only 16% of the respondents strongly agree that the organisation maintains and updates a preferred component part list for design engineers to select from other than selecting different component parts each time they improve a design or come up with new designs.

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Table 5.6: Scale index for potential improvement: Part D

Std Variable Questions Count Mean Dev. <20% 20%-60% >60%

Improvement in the supply chain 38 4.00 1.07 3% 24% 73% 1d will increase delivery performance.

The organisation can reduce excess 2d stock by improving the supply chain 38 3.39 1.33 13% 35% 53% performance.

Order fulfilment cycle lead time can 3d be reduced through an improved 38 3.82 1.20 8% 23% 68% supply chain performance.

Forecast accuracy can be improved 4d by a better performing supply chain 37 3.38 1.40 16% 32% 51% within the organisation.

Approximately 73% of the respondents agree that improvement in the supply chain will increase delivery performance by over 60%. This improvement can be translated into above 78% delivery precision in the manufacturing environment as opposed to the 43% achieved in 2011. In addition, 53% of the respondents believe that the organisation can reduce excess stock by more than 60%. This 60% improvement translates into a minimum of an R18 million saving on excess stock. About 68% of the respondents agree that order fulfilment cycle lead times could be reduced by over 60% if supply chain performance were to be improved. This benefit can translate into four to six months lead time in various programmes in contrast to the current nine to 12 months lead time. Lastly, approximately 51% of the respondents agree that forecast accuracy could be improved by a better performing supply chain at SGD.

5.4.8 Experimental control measure: Part A, B, C and D

“One of the most important statistical techniques used in the natural and social sciences is the Analysis of Variance (ANOVA). University researchers and students in these areas are often confronted with experimental data coming from a completely randomized

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design and wish to test for differences among the underlying populations” (Braun, 2012:1). An ANOVA test was conducted to ascertain whether there was a significant difference between the opinions of different groups of respondents in response to the questionnaire. It would be useful to find out if there are differences of opinions between the Programme Office, skilled technical/academically qualified personnel, junior management/supervisor, middle management/professionally qualified/specialist, senior management and executive management personnel groups. “The most common way to determine whether there are differences in the means of a continuous dependent variable across a set of three or more groups is to perform an analysis of variance (ANOVA)” (DeCoster, 2006:15).

There are many different types of ANOVAs. The specific type you should use depends on two things; the first is whether or not your groups have the same subjects in them. If the groups have different subjects in them, then you must perform a between-subjects ANOVA. If the same subjects are in all of your groups then you must perform a within- subjects ANOVA. You should try to make sure that your study fits one of these two conditions if you want to perform a one-way ANOVA (DeCoster, 2006:15).

For the purpose of this statistical analysis, a between-subjects ANOVA was chosen as the appropriate type of one-way ANOVA (analysis of variance) method for data analysis.

“ANOVA tests the difference between the means of more than two means, obtained in independent samples. It is computed as the ratio between intergroup and intragroup variances. This is called the Fischer ratio (F). A significant value of F makes us believe that the difference between the means of the comparison groups is big enough in order not to be by chance” (Tanţău & Mateeşecum, 2012: 66). For the purpose of this study the significance level for ANOVA is determined as 0.05 and the statistical data is presented below:

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Table 5.7: ANOVA test for Supply Chain Planning: Part A

Var. Variable description F F crit P-value Significance The role of supply chain planning in the 1a strategy formulation is seen as a functional input into the process. 2.57 2.51 0.045 Significant

The inability to measure the real contribution of supply chain planning on 2a strategic outcomes is an inhibiting factor 0.63 2.51 0.675 Not significant in accepting its role in strategic planning. There is a strong consensus that procurement and production should be 3a involved in the tendering process through 0.57 2.51 0.721 Not significant programme office. Our internal interdepartmental functions such as project office, design, marketing, 4a production, procurement etc. collaborate 2.21 2.51 0.077 Not significant well to support business planning. Our forecasting tool for demand planning is adequate to support business 5a objectives such as on time delivery within 0.33 2.51 0.886 Not significant budget. The organisation has a consolidated responsibility to specific individual or 6a department function to manage the 0.67 2.51 0.646 Not significant supply chain at the highest company level.

Variable 1a shows the significant difference between position level groups; hence, the variance ratio between the intergroups and intragroups and the means of the compared groups is big enough – F is bigger than the F-critical and is therefore significant. F tells us that there is a significant difference between groups, not which groups are significantly different from each other. The rest of the variables under the supply chain planning section show that there is no significant difference between the groups. The significant variable refers to the strategic formulation process, on which some of the respondents in the middle to lower levels of management would not have a strong opinion (11/32 = 34% agree); hence, lower levels of management are not involved in strategy formulation as compared to the senior or executive management level groups

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(5/6 = 83% in agreement). This therefore shows a significant difference between senior management and the rest of the levels in the organisation.

Table 5.8: ANOVA test for Strategic Outsourcing: Part A external perspective

Var. Variable description F F crit P-value Significance Our key suppliers are managed in a more 7a 1.16 2.52 0.348 formalised and monitored context. Not significant

We expect our relationship with key 8a 0.97 2.51 0.445 suppliers to last a long time. Not significant Supplier Relations Management plays an integral role in the strategic sourcing 9a 1.12 2.52 0.369 function. Not significant

We view our key suppliers as an 10a 0.59 2.51 0.703 extension of our company. Not significant The Supplier Relations Management function has a formal written positive 11a 0.35 2.54 0.893 long-range strategy for collaboration. Not significant

We share sensitive information with our 12a 0.41 2.52 0.834 key suppliers. Not significant

We have planning committees/task 13a 0.88 2.53 0.501 forces on key issues with key suppliers. Not significant

Our key suppliers are involved in the early 14a 0.16 2.52 0.974 stage of product development. Not significant Outsourcing can play a role in the South African context to support internal supply 15a chain functions such as PCB 1.09 2.51 0.381 Not significant manufacturing. There is a consensus that the buying power in volumes and rand inhibits the 16a organisation to negotiate better terms 1.42 2.52 0.241 Not significant with the suppliers. Our supplier can perform better if given an opportunity to view our sales forecast 17a 0.70 2.51 0.623 orders in advance. Not significant

There is no significant difference of opinion between the different position level groups in the Strategic Outsourcing variable part of supply chain planning.

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Table 5.9: ANOVA test for Manufacturing Planning: Part B

Var. Variable description F F crit P-value Significance Operational excellence programme has 1b the responsibility to improve the supply 1.24 2.52 0.312 chain. Not significant

The organisation has well established 0.59 2.51 0.703 2b stock management policy. Not significant

MRP system can cater for agility and 0.50 2.51 0.767 3b flexibility. Not significant The organisation has been experiencing disconnect between the manufacturing 4b planning and supply chain planning 0.60 2.52 0.696 Not significant approach.

Our organisational structure supports 0.45 2.51 0.807 5b supply chain management effectiveness. Not significant

Training for personnel to use the 1.95 2.51 0.111 6b ERP/MRP system efficiently is needed. Not significant Do you believe that there is a direct link between manufacturing planning 7b outcomes and supply chain 0.77 2.51 0.574 Not significant management? The MRP system as a planning tool is not 8b designed to support engineering changes 0.93 2.53 0.471 adequately. Not significant Do you believe the MRP system should be 9b supported by other management tools 0.30 2.51 0.906 such as Visual Management or Kanban. Not significant Manufacturing planning is about 10b scheduling, estimating and forecasting. 1.10 2.51 0.376 Do we do all this well? Not significant Manufacturing planning is supported by 11b business intelligence such as accurate 0.83 2.51 0.533 forecast inputs. Not significant Procurement planning resulting from 12b manufacturing planning is handled 1.08 2.51 0.389 optimally. Not significant Shop-floor control is adequate to track 13b work-in-progress and give status 0.50 2.51 0769 feedback to the MRP system. Not significant

There is no significant difference of opinion between the different position level groups on the Manufacturing Planning variable.

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Table 5.10: ANOVA test for Product Design Engineering: Part C

Var. Variable description F F crit P-value Significance Engineering orders have a big influence 1.75 2.51 0.150 1c on excess stock implication. Not significant

Our key suppliers are involved in the early 0.16 2.52 0.972 2c stage of product development. Not significant

Our product design seeks to minimise the 3c number of unique or specialised parts in 0.59 2.51 0.705 the system. Not significant The organisation adequately ensures that the component management is reflected 4c in the System Engineering Policy for 1.02 2.52 0.421 Not significant reliability, availability and maintainability. Part management is adequately managed within system engineering. For example 5c can deal adequately with different Not significant manufacturing packages - Lead-Free and 0.61 2.52 0.689 Leaded component.

Our organisation maintains and updates 0.41 2.51 0.834 6c adequately a preferred parts list. Not significant The organisation conducts thorough Production Readiness Reviews (PRR) 7c before products are released into the 0.46 2.52 0.800 Not significant production line. Our organisation follows basic manufacturing readiness levels criteria 8c for assessing manufacturing maturity and 0.11 2.51 0.988 Not significant risk.

There is no significant difference of opinion between the different position level groups on the Product Design Engineering variables.

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Table 5.11: ANOVA test for Supply Chain Improvements: Part D

Var. Variable description F F crit P-value Significance Improvement in the supply chain will 0.83 2.51 0.533 1d increase delivery performance. Not significant

The organisation can reduce excess stock 2d by improving the supply chain 1.89 2.51 0.384 performance. Not significant Order fulfillment cycle lead time can be 3d reduced through a improves supply chain 1.14 2.51 0.359 performance. Not significant Forecast accuracy can be improved by a 4d better performing supply chain within the 1.09 2.51 0.384 organisation. Not significant There is no significant difference of opinion between the different position level groups on the Supply Chain Improvement variables.

5.4.9 Managerial implications

The findings of this research study demonstrate some important management implications. This research contributes to the growing discipline of manufacturing planning by specifically investigating the misalignment between supply chain planning and manufacturing planning at SGD.

The research study has uncovered a number of important factors, including the importance of consolidating supply chain management responsibility under one senior manager or department. This study suggests that formal training be conducted throughout the supply chain management functional areas, namely, planning, sourcing, making and delivering of goods. The reason for this is that it is paramount for stakeholders throughout the supply chain to collaborate and for each element of the supply chain to view itself as part of the whole, and not in isolation – so as not to create a silo effect in the supply chain.

This research study provides empirical evidence that a long-term relationship with the key suppliers is essential for the organisation’s supply chain performance. Therefore the important factor for the organisation is to change the manner in which it views its key

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suppliers, not just as suppliers, but partners – as an extension of the organisation to improve supply chain performance.

In a similar vein, mistrust and uncertainty are a reality in the global supply chain and this challenge is no different to SGD’s challenge; therefore firms are confronted with the challenge to foster better relations with their key suppliers and share sensitive information, thus sharing risks and rewards. This will require an organisation such as SGD to involve key suppliers in the early stages of product development and to trust them with shared information. This research has consequently revealed, together with the literature, that suppliers can perform better and at reasonable cost when forecast order information is shared with the suppliers in advance. Excess stock of R47 million can be reduced by between 60 and 100% (a view supported by 53% of the respondents) if the supply chain performance is improved. Engineering-to-order versus make-to-stock in managing customer demands throughout the supply chain should be taken into account when evaluating supply chain performance and formulating a supply chain strategy that will improve manufacturing planning for SGD.

It is a common understanding that supply chain management (SCM) executives face unique challenges with respect to integrating supply chain specific strategies with the overall corporate business strategy (Awad & Nassar, 2010:2; Langley et al., 2009:7). Management should consider setting up structures that would complement the project approach and also accommodate the supply chain operations approach in the business management system to allow for and promote collaboration internally.

This research acknowledges that there will always be limitations in terms of the way that the organisation can improve efficiencies within the supply chain. One of the limitations is the ordering policy which is governed by the business model that follows engineering- to-order principles. Therefore there will always be engineering design changes; nevertheless this can be countered by good baseline management principles.

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The second limitation is that there will always be minimum order quantities, but this can also be balanced with the use of better bargaining skills to avoid buying excessive stock due to minimum quantities. Moreover, the cost of keeping stock versus the cost of buying discrete quantities required per period should be constantly reviewed.

The third limitation is time to market pressure, which is a constant that results in production and development activities happening in parallel to each other in order to crash the project time span. Supply chain should be taken into account during design phase considerations and not left to the supply side; however, engineering and design should become involved in mitigating the risk of obsolescence, choosing the common part number route and trying to standardise the baselines for manufacturing without limiting design innovation.

5.4.10 Summary and conclusions

The focus of this chapter was to outline the data presentation, analysis and interpretations. This study empirically analysed the status of misalignment between supply chain planning and manufacturing planning at SGD. In this study, four areas were identified in order to evaluate the status and the extent of the interaction between supply chain planning and manufacturing planning as practices at SGD. The four areas that were identified are: (1) supply chain planning in the organisational context – ‘plan’; (2) strategic sourcing with a view to better supplier relations – ‘source’; (3) manufacturing planning in the organisational context – ‘make’; and (4) influence of product design engineering on production delivery targets – ‘deliver’. The objective of the study was to make suggestions to improve manufacturing delivery performance by realigning the interaction between supply chain management and manufacturing planning.

Significantly, the study revealed that there is a direct link between manufacturing planning outcomes and supply chain management at SGD. This can be interpreted as supply chain performance directly affecting manufacturing targets; hence, the

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manufacturing function is part of the supply chain functional areas. Despite the significant finding that supply chain performance supports manufacturing targets, the study found that there is a disconnect between manufacturing planning and supply chain planning at SGD. In addition, interdepartmental collaboration suffers as a result of departmental functions operating in isolation from each other. This also extends to key external suppliers where there is little sharing of product information or forecast information on orders in advance. Manufacturing planning effectiveness in turn requires efficient supply chain planning for on-going collaboration that cuts across most business functional areas, as opposed to a silo approach dominated by a few functions such as the Programme Office.

Based on the literature reviewed, it was found that the defence market relies on government policies and regulations of service and product needs, linked to overall supply chain collaboration in the defence industry. The research study found, through empirical evidence, that internal and external collaboration was not sufficient throughout the supply chain to support business targets such as delivering on time and within budget. However, the study revealed that little effort had been made to adapt the supply chain to support the current business environment. This research acknowledges that the supply chain is not standard throughout the defence industry and depends on the individual industry segments. The study has realised the importance of customising KPIs for supply chain performance, but also acknowledges the importance of benchmarking against best practices through models developed by the Association for Operations Management (APICS). These KPIs are useful in strategy formulation and performance measurement in supply chain management.

In general, SGD uses some forecasting methods and tools to estimate and provide guidance for resource planning. Based on the literature reviewed, it would appear that by means of the options for simulating activities, as well as the flexible and dynamic nature of applications, organisations can conduct better forecasting, assessment and identification of trends in the industry into which it falls in support of organisational

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business requirements. A reasonable number of people who responded to the questionnaire believe that manufacturing planning is not adequately supported by an accurate forecasting tool at SGD. This can be subscribed to an unpredictable global defence industry market that is proving to be more and more difficult to read and predict.

Demand planning is not aligned at SGD; the study found that there is a serious misalignment between manufacturing planning and supply chain planning. This is exacerbated by the unpredictability of defence market trends. The literature reviewed deems demand planning to be the most important supply chain process, in that it drives almost all other processes directly or indirectly toward fulfilling customer demand.

Simatupang and Sridharan (2005:257) confirm that “the collaborative supply chain framework should be composed of five connecting features of collaboration, namely collaborative performance system, information sharing, decision synchronizations incentive alignment; and integrated supply chain processes”. Only 26% of the respondents acknowledged that supply chain system interfaces are effective in supporting manufacturing planning; while only 13% respondents are convinced that collaboration is done well and supported by the SGD organisational structure. External collaboration is also only done to a small extent. The research confirms that the organisation is structured according to a project-based model; a silo mentality flourishes and collaboration between departmental functions is not encouraged.

Strategic sourcing is minimal, which is indicated by the view of 63% of the respondents that SGD’s key suppliers are not involved in the early stages of product development. This supports the argument that the organisation is not yet ready to integrate or collaborate vertically into the supply chain or to encourage external collaboration through improved supplier relations and collaborative planning. Conversely, the majority (58%) of the respondents strongly agrees that the performance of the suppliers would improve if the suppliers were to be given sales forecast orders in advance to plan and support SGD in its delivery targets.

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Only 21% of the respondents strongly agree that manufacturing planning, in terms of scheduling, estimating and forecasting, is done well at SGD using the MRP system. In addition, about 58% of the respondents are of the opinion that the MRP system alone is not adequate to support the engineering-to-order environment and should be supported by other management tools such as Visual Management or Kanban.

Design changes will always be a factor that restricts control over excess stock. About 58% of the respondents strongly agree with the view that proper controls on engineering changes can reduce excess stock at SGD. In a similar vein, product design does not seek to minimise unique parts during the design and development phases of the product life cycle; a statement with which 52% of the respondents agree. Baseline management effectiveness is paramount in an environment where frequent engineering changes are experienced, thus PRRs should be used effectively. However, approximately 38% respondents are of the opinion that PRRs are conducted to a small extent to not at all and the rest (62%) believe that this is done fairly well at SGD. In spite of this view, there is still room for improvement.

Manufacturing planning greatly depends on the supply chain capability to meet delivery commitments and budget targets. The main finding is that the majority (89%) of the respondents agrees that there is a direct link between manufacturing planning and supply chain management. A significant number (92%) of respondents believe that the personnel in the supply chain can be better trained to use the ERP system more effectively; in particular, the project office and design should receive formal training in the supply chain management discipline.

Only 66% of the respondents indicated that the organisation has consolidated responsibility for managing the supply chain to a specific individual or department function at the highest company level. Meanwhile, the other 33% maintained that there is no specific person or department that has been made responsible at the highest level for supply chain management.

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CHAPTER 6

6. CONCLUSIONS AND RECOMMENDATIONS

6.1 INTRODUCTION

This chapter will focus on the findings on each of the objectives, the recommendations and conclusions. The recommendations are aimed at creating a strong link between manufacturing planning and supply chain management at SGD. In that way, the performance of the organisation can be improved in order to deliver finished goods on time. These recommendations are limited to SGD, but can be extended to the other two organisations in the top three of the South African local defence industry and internationally. However, certain aspects of the research recommendations focus on problems that are specific to the organisation.

6.2 KEY FINDINGS

6.2.1 Findings on the strategic perspective

Firstly, the findings of this study suggest that, in supporting efficient supply chain management, a focus on customer demand management in the engineering-to-order environment is very different to that in a make-to-stock environment. The engineering-to- order environment is more applicable to SGD, wherein the application of the customer order decoupling point to fulfil customer demands takes place from the supplier’s source rather than from the finished goods source. Therefore, when servicing customers, supply chain management becomes more challenging when pulling from the suppliers rather than pulling from the stores. One of the major challenges is to manage the value chain throughout the supply chain from the source order specifications to end customer delivery, on time.

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The objective of this dissertation was to make suggestions to improve manufacturing delivery performance by proposing the alignment and strong interaction between supply chain management and manufacturing planning in SGD. This dissertation argues that an effective holistic manufacturing planning approach supported by efficient supply chain management, which is in turn grounded on sound supply chain management principles, will improve production delivery performance, thus enabling the long-term success and survival of manufacturing companies in the defence electronics industry.

The majority of the respondents strongly agree with the proposition of this study that there is a direct connection between manufacturing planning outcomes and supply chain management. This is an affirmation of the literature reviewed in this study as well. This study found that SGD is experiencing a disconnect between manufacturing planning and supply chain planning. Therefore, a uniform approach to both supply chain strategy and manufacturing planning was not established by this study.

Thus, it would be reasonable to argue that the 43% manufacturing delivery performance in the year 2011 was, to a large extent, a result of the misalignment between supply chain planning and manufacturing planning. By the same token, the majority of respondents strongly believe that delivery performance can be improved by 61 to 100% if supply chain management were to be improved. This means that the organisation could achieve a better than 86% delivery precision target.

Secondly, the findings of this study revealed that the MRP system in SGD does not fully support the engineering-to-order environment; therefore, there is a need for supplementary measures to cater for the unpredictability of the ordering process. Thus, the MRP system does not cater for agility and flexibility as compared to the APS. On the other hand, shop-floor control closed loop feedback system to facilitate actual information flow and report actual financial impact as it happens on the floor and status tracking of work-in-progress to support efficient supply chain management are not in existence. An APS system would allow the organisation to respond to customers’ order

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changes swiftly, which would result in the better utilisation of labour resources and help to avoid excess material build-up (currently at R47 million).

Thirdly, order forecasting will remain a challenge due to the confidentiality protocols in military defence projects; thus making it difficult to predict future trends in product volume levels to support manufacturing planning forecasting. In spite of that, it is crucial to share business intelligence information timeously; hence, the supply functional area needs to know ‘what’ and ‘when’ to procure, and the manufacturing functional area needs to know ‘what’ and ‘when’ to assemble. This research has found that a demand planning process supported by a forecasting tool to predict the demand for products so that the requirements can be fulfilled through existing inventory, manufacturing and new purchases is missing or not well understood at SGD. In order to achieve effective planning, alignment of the resources required and how tasks should be executed, business intelligence plays a major role in contributing to overall business performance. A proper forecasting tool and intelligence could assist the company to save R1.9 million in cancelled or invalid orders from procurement and the R47 million in excess stock could be drastically reduced.

6.2.2 Findings on the internal perspective

Firstly, one of the two secondary objectives of this research study was to assess internal collaboration interfaces within the cross-functional structures of the integrated supply chain system. Collaboration is crucial at SGD, not just between Production and Procurement, but also for other functional departmental areas such as Design and Development, the Programme Office, Quality, Product Management, Sales and Marketing within the value chain in order to understand the supply chain cost drivers, as well as to understand the integrated goals derived from the strategic direction of the organisation. The study revealed that the majority of the respondents strongly agrees that interdepartmental functional collaboration is not doing well in supporting business planning. This is evident through the lack of seamless handover of contract negotiations,

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project acceptance, development cycle, procurement cycle, production cycle and support cycle. This can be attributed to the fact that the length of time between these different functional areas for executing multiple projects can be between three to five years. There are two important handovers in the value chain identified by this study. The first is the tendering process, where the basis of the contract negotiations is agreed at times without all the role players being involved, and particularly the Production and Procurement departments which play an execution role. The other important handover is the development handover to Production, where products will not be fully industrialised before production commences owing to the time pressures to deliver the system to the client.

Secondly, supply chain training of personnel in demand planning, manufacturing planning and supply planning is crucial to emphasise the importance of supply chain management in the value chain system. This is especially to bring focused attention to non-core functional areas of the supply chain system at SGD, beside Procurement and Production. The study reveals that the majority of the non-core personnel in the supply chain functional areas, such as Marketing, the Programme Office and Finance, have not received formal training in supply chain management. The researcher believes that, as supported by the literature reviewed, personnel in Marketing, the Programme Office and Finance should be trained in SCM skills and also ERP system competency. The results of the research convincingly indicate that SCM training is not equally important in the different supply chain functional areas. This is indicative of the silo effect that SGD is experiencing as indicated by the lack of collaboration throughout the supply chain functional areas.

Thirdly, the majority of the respondents strongly agrees that manufacturing planning is not done well at SGD. This is significant and supports the finding that the poor manufacturing planning is a direct result of the missing strategic supply chain management approach at SGD. Planning for manufacturing is not always derived from

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integrated supply chain planning strategy that ensures constant delivery performance as expected by customers.

Fourthly, the research has found that a realignment of product development activities to supply chain capacity and capability is crucial. This research shows that the product design process does not seek to minimise the number of unique parts during the design and development phases of the product life cycle. Similarly, the majority of the respondents strongly agrees that inventory build-up at SGD, which is depicted by the days-in-stock (currently 512 days as well as R47 million excess stock) is as a result of poor baseline change management as a result of factors such as minimum order quantities for procurement and also lower sales levels experienced. More than half of the respondents believe that the organisation could reduce excess stock drastically. This would translate into savings of R18 million to R47 million in terms of a reduction in excess stock.

Lastly, the study found that engineering resources are a big factor when it comes to manufacturing activities in an engineering-to-order environment. Therefore, capacity planning for production should include engineering resource planning so as to arrive at the planned delivery target. In order to support the supply chain efficiency goals, such as lowering inventory levels and achieving a better stock turnover of twice a year as opposed to current stock turnover of less than once a year (0.7), the development process has to cater for production systems and processes and the two worlds should be aligned for optimal operational output.

6.2.3 Findings on the external perspective

The second secondary objective of this research was to review the challenges of strategic sourcing in the military defence manufacturing organisation. Trust is an important factor in the military industry due to strict control of information and product

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classification. In spite of this situation, the industry is forced by globalisation and market conditions to forester relations horizontally and vertically.

Therefore, SGD should extend its external collaboration and share sensitive information such as product design and schedule plans with its suppliers. This should include investigating an integrated planning approach, in terms of which sales order information is shared with suppliers in advance. According to the literature reviewed and supported by the primary data collected, this has proven to be a current weakness rather than a strength in the supply chain in that supplier delivery performance at SGD can improve by over 60% if the information is shared with them on time. This is a strength in that no organisation can exist on its own and therefore suppliers become more of an extension of the business and would give the SGD a competitive edge by providing flexibility in resource allocation without allocating fixed budget expenses to these resources internally and investing in new capital investment for expansion when required.

6.3 RECOMMENDATIONS AND CONCLUSIONS

The research study points to varying levels of commitment and understanding of supply chain management in different departments. Supply chain challenges and manufacturing delivery performance challenges are likely to continue for the foreseeable future until total integration is achieved throughout the supply chain. Therefore, collaboration between the internal supply chain functional areas and external suppliers is now no longer to be left to perhaps one department such as the Programme Office, but should rather be made a mandatory strategy for SGD at the highest level; thus the organisation's operation would be focused on in its entirety as appose to a project- focused orientation. Ballou (2006:381) states: About 47% of the firms are working toward integration within the walls of their own firms. Whether this interfunction integration is attributed to the implementation of large software systems such as SAP rather than to actual collaboration and compromise is not clear.

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Approximate 34% of the firms focus their integration efforts on purchasing and first-tier suppliers. Beyond that, there is little attempt at integration. This is probably due to the inherent difficulties of achieving effective collaboration.

This is supported by Ross (2011:3), who maintains that in the … twenty-first century, companies have all but abandoned strategies based on the vertical integration of resources. On the one side, businesses have continued to divest themselves of functions that were either not profitable or in which they had weak competencies. On the other side, companies have found that by closely collaborating with their supply chain partners, new avenues for competitive advantage can be uncovered. Achieving these advantages can only occur when the entire supply chains work seamlessly to leverage complementary competencies. Collaboration can take the form of outsourcing noncore operations to channel specialists or leveraging complementary partner capabilities to facilitate the creation of new products or speed delivery to the marketplace.

The procurement function should be able to meet the material requirement related to the inbound and outbound logistics of business activities and, often more importantly, related to operations. Operations may have a different structure in manufacturing companies: • make-to-stock – standard products are manufactured and stocked • make-to-order – products are manufactured from raw materials or the purchased components inventory after a customer order has been received and accepted • customer-specific range • engineering-to-order – all manufacturing activities from design to assembly, even purchasing of the required materials, are related to a specific customer order.

Production is done usually on multipurpose machinery, requiring highly skilled operators (Van Weele, 2010:7).

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6.3.1 Key recommendations

The recommendations are adapted from the concepts of integrated supply chain planning and collaboration. Provided below are a number of recommendations that will assist SGD in achieving supply chain excellence and improving manufacturing planning as illustrated in Appendix B and C.

1) An improved and more efficient supply chain approach or strategy should be developed to cater for customer delivery expectations and to meet budget expectations and plans. This will enable the efficient supply of equipment and create a competitive edge in the defence industry. The financial advantages will be in terms of higher stock turnover and lower production cost inputs. The keywords would be 'on time delivery within budget'.

In designing a supply chain strategy, consideration should be given to an engineering-to-order environment at SGD. A customer order decoupling point means more information is needed from customers and therefore the MRP system might not have all the bills of material required to complete the project. The need for engineering involvement and material coordination is vital throughout the supply chain management process from customer to suppliers.

An effective holistic production planning approach supported by a competitive supply chain approach grounded on recent supply chain management principles would assist the organisation to deliver on time and within budget. It is recommended that the organisation choose an agile supply chain strategy. On the other hand, there should be a tendency to be being Lean in other areas where possible such as efficient production methods – the supply chain (SC) strategy describes in which areas a company wants to succeed.

2) More accurate business intelligence should be provided to improve the quality of customer order prospects considered for business planning and forecasting.

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Prospects to be considered for business planning (WB 2 & 3 decision gates) should have at least a window period of one year before they are considered for business planning at (EB1 gate decision). If not possible, then more frequent business reviews should be conducted through the use of the Sales and Operations Planning (S&OP) committee, to review the business risk level and execution capability. The contract owner should present the case to the S&OP forum for switching on at-risk critical work to mitigate the risk of not meeting the customer delivery date and avoiding budget overruns.

3) Before issuing the contract directive and registering the order on the ERP and setting up a structure for costing, the S&OP committee should, at the EB1 gate decision stage, be involved in reviewing the commitments made in the WB3 decision gate to see whether they are still realistic; hence the time lapse between the WB3 and the EB1 decision gate stages. Where there are deviations, adjustments should be made in terms of, for example, cost, time and resource allocations. Internal collaboration and interfaces should be encouraged to promote interaction between the Marketing, the Project Office, Procurement and Production departments. Silo effects should be discouraged and forums such as the S&OP should be established to promote internal collaboration.

4) Demand loading on the ERP system should be aligned with the business plan as well as the EB1 decision gate process for contract execution. The business plan should always be aligned with the appointment and allocation of personnel. Capacity planning, in particular engineering resources, should be fixed at this point to allow the supply chain enough opportunity to deliver on time and within budget.

5) The most challenging goal for SGD would be the integration of key suppliers in the supply chain system. This would mean the sharing of critical information, the development of joint procurement, development and production plans and the

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assurance given to suppliers that long-term stability and relationships are important. Strategic sourcing and thus risk sharing should be considered to be high on the supply chain experts’ agenda. In the South African context, the challenge is the securing of capable suppliers and the long-term survival of those suppliers and trust.

Given the competitiveness of the supplier base in the South African context, the organisation needs to develop new and innovative ways to manage the most complex supplier relations. The organisation should create hybrid models or develop new ones from scratch to counter unique risks as compared to dealing with suppliers from developed countries such as Europe and America.

6) Strategic outsourcing should be encouraged for predefined components, mechanics, PCBs and labour. Outright outsourcing is not encouraged, although capability for capacity expansion should be encouraged through collaboration with external organisations in all areas. A one-stop-shop concept should be encouraged but the risk of relying on a single source supplier should be avoided. Limiting the number of suppliers is an advantage for better supplier relations and cost benefits in relation to discount offerings. The organisation should keep its strategic advantage of controlling the golden keys within the internal supply chain capability.

Supplier relations should be improved by implementing relevant technology to support the company wide – a supply chain system that will allow external links with the main suppliers, that is, a web-based link through which suppliers can be given access to receive orders and update order status without imposing a security risk on the organisation. Issues of trust should be dealt with via joint risk sharing and jointly establishing processes and procedures to support long-term stability and foster better relations. This will allow a reduction in procurement steps and waiting time and will also reduce demand peaks.

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PCB manufacturing outsourcing can be implemented once the product maturity process has been stabilised and engineering documentation can be easily translated by suppliers through improved industrialisation capability. Product integration and test should remain the golden keys. Capability and capacity should be established to pave way for subcontracting activities such as the PCB manufacturing discipline. If all the infrastructure, technical know-how, design technical and manufacturing process documentation is in order, then SGD can be outsourced provided the going concern of the business identified is minimised in terms of risk.

7) The organisation should adapt its manufacturing, planning and control process based on the high complexity of the product characteristics and bills of material. The organisation is characterised by small volume demand; therefore it is recommended that the production process be designed for one-offs and ten-offs because the orders for hundreds are few and far between. Mass production and batch production processes are suitable for medium to large volume production and continuous supply call-offs. Throughput time is long (averaging 9 months), therefore functional design layout is recommended to handle small batch sizes. The manufacturing process can be classified as a jobbing “processing of a range of product models characterized by complex, often non-repeated configurations of features and options. These products tend to be low in volume while high in cost and price” Ross (2011:22).

8) Management should work to integrate the internal supply chain to ensure that all the functional areas and activities involved in the chain are working harmoniously together. This should incorporate a business process that is in harmony with the project management processes. Teams should be formed to support both organisational and project specific requirements. Supply chain strategy should be directed from the highest level of the organisation and consolidated to one

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individual or department and be incorporated as part of the overall strategy formulation (refer to Appendix D)

6.3.2 Conclusion

The primary objective of this dissertation was to make suggestions for improving manufacturing delivery performance and the secondary objectives of this research study were (1) to assess internal collaboration interfaces within the cross-functional structures of the integrated supply chain system, (2) to review the challenges of strategic sourcing within the military defence manufacturing organisation.

The concept of integrated supply chain management offers a competitive edge when supported by the relevant hardware and software technologies and well-trained personnel. Recent technology enables internal and external collaboration to coordinate and manage multi-functions throughout the value chain from customer order placement to raw material purchasing and order fulfilment.

Efficient supply chain management aligned with effective manufacturing planning provides benefits for manufacturing delivery performance, cost reduction, improved customer service and increased company revenue, therefore creating shareholder value.

Supply chain management offers management tools for dealing with complex supply and demand management variables for a wide variety of companies around the world. A closed loop supply chain that covers return logistics should be considered by the organisation in view of global environmental pressures, that is, factors involving recycling, reuse, environmentally friendly processes and products, and carbon footprint.

Supply chain factors will change and adapt in accordance to the ever-changing business needs, world economics and marketplace shifts. Improvement of supply chain

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management performance will increase the performance in the procurement ‘source’, manufacturing ‘make’ and sales ‘deliver’ functional areas and create harmony between the different levers of the supply chain through an integrated value chain approach. Respondents have the confidence and belief that when changes occur in the supply chain, the improvement will overflow into many areas of the business. Subsequently, excess stock should reduce by over 60%, which represents a R37 million reduction in monetary terms; delivery performance should increase to more than 85% precision, which represents an improvement in on-time delivery precision of better than the current 43%; and the order fulfilment cycle would be shortened by the accuracy of the forecast plan to improve to six months versus current nine months lead time.

An effective supply chain should be able to handle a variety of factors such as:

− Accurate supply chain measurements to establish the benchmark for total supply chain performance. − Collaborating with internal and external stakeholders to share essential and relevant information resulting in improved communication. − The supply chain approach begins with the customer in mind and is designed around the customer or market needs. − Growth or value-add should be the focal point of any supply chain rather than cost-cutting measures. The focus should be on value-add throughout the supply chain and eliminating waste.

6.4 LIMITATIONS AND FURTHER RESEARCH

One limitation to the study is that it was a case study that considered only SGD’s point of view. This might have resulted in a biased response to the research questions. Further research should seek more input from the key suppliers as well as similar organisations in the local South African context.

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The study was conducted with a sample population drawn within one organisation in a single industry segment. Further research could be conducted among supply chain professionals across the aircraft industry and other industries to cover the entire defence industry. A larger study could be conducted focusing on regional defence organisations.

Another cautionary limitation of the study is the disciplined culture within the military industry that sometimes works against creative thinking and change. Change management would be one of the obstacles noted when implementing an effective supply chain management culture across all functional areas as compared to a project- oriented organisation, which is typical of military defence organisations. Hence there are limitations in implementing a centralised supply chain organisation that links individual project outcomes to one central supply chain management outcome strategy to meet consolidated business objectives.

Additional research can be conducted to investigate the most appropriate supply chain models applicable to the military defence industry and linked to manufacturing planning effectiveness, which includes studying the use of better tools and application methods to manage and evaluate forecasts demands in the defence industry.

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APPENDICES

APPENDIX A: Saab Grintek Defence Business Process

Source: Adapted from Saab EDS business process description (2012)

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APPENDIX B: Supply chain pyramid

Source: Adapted from Gilmore (2011)

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APPENDIX C: Proposed Integrated supply chain management and planning phases

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APPENDIX D: Proposed integrated supply chain organisation

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APPENDIX E: Typical components of ERP data

Source: Adapted from Marais (2003:64)

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APPENDIX F: IDAS (Integrated Defensive Aids Suite)

Source: Adapted from Saabgroup.com (2012)

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APPENDIX G: Class 1 Suppliers by performance ranking order in 2011 No. Organization Name Qty delivered 1 RUAG AEROSPACE/AVIATION 1 2 DRS TECHNOLOGIES CANADA LTD - (A) 2 3 JJA MASJINERING - (L) 10 4 AEROSUD AEROSPACE SYSTEMS (PTY) LTD - (A) 15 5 STOP-CHOC - (A) 20 6 CARL ZEISS OPTRONICS (PTY) LTD - (A) 37 7 OPTICAL FILTERS LIMITED - (A) 130 8 SWISSOPTIC LTD - (A) 604 9 ALU ARTS CC - (A) 831 10 SAMES - (A) 369 11 DY 4 SYSTEMS (UK) LTD (CARDIFF) DBA CWCEC- (A) 23 12 M-TEK (PTY) LTD - (A) 14 391 13 TRITECH ALKAST LIMITED - (A) 49 14 PLATEMAR CC - (A) 1 731 15 DARTCOM (PTY) LTD - (A) 1 305 16 SUPPORT AND SERVICES 8 17 PHOTEK LTD - (A) 15 18 ENGRAVELOT - (A) 1 553 19 G KRACK - (A) 144 20 SM TECH - (A) 297 21 AEROSPACE ELECTROPLATING CC - (A) 313 22 CENTRAL CIRCUITS PTY LTD - (A) 2 342 23 TRAX INTERCONNECT (PTY) LTD - (L) 3 887 24 COATLAB CC - (A) 4 706 25 MICROMAX (PTY) LTD (A) 11 541 26 SAAB SYSTEMS GRINTEK - (A) 795 27 CENTRAL ELEC. TECHNOLOGIES - (A) 1 163 28 PLEXSA MANUFACTURING - (A) 248 29 REUTECH RADAR SYSTEMS (PTY) - LTD - (A) 3 30 KREON TECHNOLOGY (PTY) LTD - (A) 101 31 A 2 Z ELECTRONIC ASSEMBLY - (A) 129 32 ELECTRONIC DESIGN AND MANUFACTURING - (A) 801 33 ELCO CIRCUITI STAMPATI (A) 44 34 MEESTER MASJINERING - (A) 11 019 35 EXCEPTION PCB LTD - (A) 56 36 M&H ENGINEERING - (A) 2 283 37 POSMO ELECTRONICS - (L) 720 38 ACU-TURN C.C - (A) 8 699

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No. Organization Name Qty delivered 39 MAP - (A) 1 145 40 UNIQUOTE PAINT A PANEL - (A) 3 848 41 MICRO ETCH CC - (A) 820 42 PROFECTION MANUFACTURERS - (L) 354 43 ROLIN MANUFACTURING (A) 2 240 44 RUPECO ENGINEERING - (L) 494 45 THALES OPTRONICS LIMITED - (A) 13 46 GPD OPTO ELECTRONICS CORPORATION - (A) (USA) 505 47 GUILLAUME PRECISION ENGINEERING - (A) 161 48 OMNIGO (PTY) LTD - (A) 436 49 CONTINA STORAGE SYSTEMS - (A) 317 50 INVOTEC CIRCUITS TAMWORTH LIMITED 121 51 DALIFF PRECISION ENGINEERING (PTY) LTD - (A) 3 599 52 MARNIC PRECISION ENGINEERING (PTY) LTD - (A) 397 53 DACANA ENGINEERING - (L) 4 374 54 CURTISS-WRIGHT DRIVE TECHNOLOGY 8 55 RDDS AVIONICS LTD 22 56 SAAB AB EDS 12 578 57 RUAG AVIATION - (A) 9 58 AMPHENOL 34 59 CIRCUITBOARD MANUFACTURING CC - (L) 36 60 MICRON ELECTROPLATING (PTY) LTD - (L) 60

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APPENDIX H: Class 2 Suppliers by performance ranking order in 2011 No. Organization Name Qty delivered 1 LOCATOR SYSTEMS (PTY) LTD - (A) 4 2 ATLAS INDUSTRIAL SYSTEMS - (A) 5 3 LYTTELTON INSTRUMENTS CC - (A) 6 4 RADEL - (A) 18 5 ELECTRO-QUIP 20 6 UNIVERSAL SCREEN PRINT CC - (A) 277 7 K H - (A) 300 8 SONDOR INDUSTRIES (PTY) LTD - (A) 342 9 ELECTRONIC INDUSTRY SUPPLIES - (A) 701 10 ASTRA FASTENERS (PTY) LTD - (A) 1 000 11 BVH TECHNOLOGIES (PTY) LTD - (A) 1 110 12 FOX ELECTRONICS (USD) - (A) 1 400 13 ACCUTRONICS - (A) 1 633 14 HI-Q ELECTRONICS (PTY) LTD - (A) 4 113 15 SUNTRONICA CC - (A) 31 285 16 SCROOS CC - (A) 103 550 17 ELECTROCOMP (PTY) LTD PRETORIA 38 701 18 COMMUNICA (PTY) LTD - (A) 52 676 19 LANTEK CORPORATION - (A) 2 782 20 TMS TECHNOLOGY MARKETING SOLUTIONS - (A) 2 741 21 BEKITHEMBA ELECTRONICS & MECHANICAL DISTRIBUTORS - (A) 15 779 22 AUTOMATION TECHNIQUES (JHB) - (A) 543 23 LERATO ELECTRONICS (PTY) LTD - (A) 3 865 24 TECHNOLOGY INTEGRATED SOLUTIONS - (A) 4 758 25 ACTUM ELECTRONICS (PTY) LTD - CENTURION - (A) 38 070 26 SPECTRUM CONCEPTS CC - (A) 1 338 27 EBV ELECTROLINK- CENTURION - (A) 93 403 28 RS COMPONENTS SA - JOHANNESBURG 10 848 29 VEPAC ELECTRONICS PTY LTD - (A) 808 30 ECM TECHNOLOGIES CC - (A) 374 31 CONNECTOR & WIRE SERVICES CC - (A) 2 178 32 TRX ELECTRONICS CC - (A) 1 796 423 33 IS ELECTRONICS (PTY) LTD - (A) 81 34 AVNET KOPP (PTY) LTD - (A) 211 182 35 OTTO MARKETING CC - (A) 449 36 CABCON TECHNOLOGIES (PTY) LTD - (A) 221 37 SEAL CENTRE - (A) 1 801 38 SKIFFY SA (PTY) LTD - (A) 4 351

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No. Organization Name Qty delivered 39 PENNY & GILES AEROSPACE (USD) - (A) 4 40 WEBB INDUSTRIES - (A) 97 41 DATA DEVICE CORPORATION (USA) - (A) 158 42 MILLENIUM PLASTIC CC - (A) 4 000 43 MB SILICON SYSTEMS (PTY) LTD - (A) 17 265 44 HICONNEX (PTY) LTD - (A) 47 486 45 SCREWMAN (PTY) LTD - (A) 55 805 46 FASTENER NETWORK - (A) 91 115 47 CST ELECTRONICS (PTY) LTD - (A) 14 166 48 ASIC DESIGN SERVICES - (A) 1 951 49 MAIZEY PLASTICS 16 50 MICROSOURCE - (A) 6 000 51 SAAB AB (PUBL) EDS 388 52 ECS CC - (A) 5 854 53 HELLERMAN TYTON - (A) 11 798 54 RF DESIGN 32 207 55 BETA TRANSFORMER TECHNOLOGY CORPORATION - (A) 586 56 EMC TECHNOLOGY (PTY)LTD - (A) 50 460 57 ARROW ALTECH DISTRIBUTION (PTA) - (A) 229 859 58 PACER COMPONETS PLC 230 59 DS COMMUNICATIONS - (A) 826 60 CONECTEK INDUSTRIES, INC. - (A) 21 176 61 COMPEX CORP (USA) - (A) 3 550 62 REMAG (PTY) LTD (PRETORIA) - (A) 22 63 VIGILANT COMMUNICATIONS LTD - (A) 31 64 EAGLE TECHNOLOGY CC - CENTURION - (A) 1 878 65 MANTECH ELECTRONICS (PTY) LTD - (A) 717 66 PRIME TECHNOLOGY CORPORATION (USA) - (A) 12 198 67 SWATEK ELEKTRIES CC 56 68 PRETORIA SPRING SALES CC - (A) 350 69 WIRE ELECTRIC (PTY) LTD - (A) 44 341 70 UNLIMITED INDUSTRIES INC - (A) (USA) 11 625 71 LYNUX WORKS INC - (A) 23 72 TOUCHVISION DIGITAL MEDIA SOLUTIONS - (A) 1 73 SAAB AB (PUBL) - AEROSYSTEMS 2 74 TELCOM INDUSTRIES (PTY)LTD - (A) 58

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APPENDIX I: Relationship of Manufacturing Readiness Level (MRL) and Technology Readiness Levels (TRL)

Source: Adapted from United States Government Accountability Office Report (2010)

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APPENDIX J: Typical Production Readiness Review Process

1 2

Source: Adapted from Burger (2012)

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APPENDIX K: Questionnaire cover letter

January 9, 2014

Survey Request for Master’s Degree Dissertation

Dear Sir/Madam

I am currently conducting research on ‘Interaction between Supply Chain Management and Manufacturing Planning at Saab Grintek Defence, Centurion for the partial fulfilment of Master of Commerce Degree in Business Management (MCom) at the University of Johannesburg. This research will focus on the misalignment between manufacturing planning and supply chain planning.

I would greatly appreciate it if you would kindly complete the attached questionnaire, which should take no more than 30 minutes of your time. All responses will be handled with strict confidentiality and only group responses will be reported, anonymity is guaranteed. Please return the questionnaire back to me, ensuring the responses have been saved, by no later than 14 December 2012.

Your participation is greatly appreciated and will add value to my research report findings, which will be shared upon request.

If you wish to clarify any matter concerning the questionnaire, or would like to have the summary of the research finding, you can contact me at: Telephone: (012) 672 6262 (082) 370 0976 E-mail: [email protected]

Yours faithfully Edwin Mashinini Prof J. du Plessis Supervisor 011 4659908 [email protected]

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QUESTIONNAIRE

ON

SUPPLY CHAIN MANAGEMENT AND MANUFACTURING PLANNING

Please fill in the questionnaire using a black pen by marking the appropriate block with an “X” and submit back to Edwin Mashinini.

Background Information

1. Please indicate which of the following best describes your job? 1 Semi-skilled 2 Program Office 3 Skilled Technical/Academically qualified 4 Junior Management/Supervisor/Foreman 5 Mid-management /professionally qualified/Specialist 6 Senior Management 7 Executive Management

2. Which of the following best describes your department? 1 COO Office 2 Quality, Configuration and Opex 3 Product Management 4 Design & Development 5 Marketing 6 Program Office 7 Production 8 Procurement 9 Finance

3. How long have you been with the organisation?

1 2 3 4 5 0-1 years 1-3 years 3-5 years 5-10 years More than 10 years

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4. What is your highest level of education?

1 2 3 4 5 6 Matric Degree/ Honours degree Master Doctorate Other (M) National level (M + 3) degree level degree Diploma (M level +3 )

5. What is your previous work experience (with ERP’s/MRP)?

1 2 3 4 5 6 None Very Low Low Medium High Very High

6. What is your role (interaction) with Supply Chain Management?

1 2 3 4 5 6 None Enquirer General Key Super Management Role Role

7. Do you have any formal training in Procurement & Supply Chain Management?

1 2 Yes No

The questionnaire consists of the following sections: A. Supply Chain Planning in the internal and external organisational context B. Manufacturing Planning within Saab Centurion C. Influence of Product Design Engineering on production delivery targets D. Improved competitive advantages

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PART A: SUPPLY CHAIN PLANNING IN THE ORGANIZATIONAL CONTEXT

Questions Test the applicability of these statements to your

present work situation: - internal perspective Great

extent extent Not at all at Not Very little Very great Somewhat 1a The role of supply chain planning in the strategy formulation is seen as a functional input into the process. 2a The inability to measure the real contribution of supply chain planning on strategic outcomes is an inhibiting factor in accepting its role in strategic planning. 3a There is a strong consensus that procurement and production should be involved in the tendering process through programme office. 4a Our internal interdepartmental functions such as project office, design, marketing, production, procurement etc. collaborate well to support business planning. 5a Our forecasting tool for demand planning is adequate to support business objectives such as on time delivery within budget. 6a The organisation has consolidated responsibility to specific individual or department function to manage the supply chain at the highest company level.

Questions Test the applicability of these statements to your

present work situation: - external perspective Great

extent extent Not at all at Not Very little Very great Somewhat 7a Our key suppliers are managed in a more formalised and monitored context. 8a We expect our relationship with key suppliers to last a long time. 9a SRM plays an integral role in the strategic sourcing function. 10a We view our key suppliers as an extension of our company. 11a The SRM function has a formal written positive long-range strategy for collaboration. 12a We share sensitive information with our key suppliers. 13a We have planning committees/task forces on key issues with key suppliers. 14a Our key suppliers are involved in the early stage of product development. 15a Outsourcing can play a role in the South African context to support internal supply chain functions such as PCB manufacturing. 16a There is a consensus that the buying power in volumes and rand inhibits the organisation to negotiate better terms with the suppliers. 17a Our supplier can perform better if given an opportunity to view our sales forecast orders in advance.

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PART B: MANUFACTURING PLANNING IN THE ORGANIZATIONAL CONTEXT

Questions Test the applicability of these statements to your

present work situation: - internal perspective

Great extent extent Not at all at Not Very little Very great Somewhat 1b Operational excellence programme has the responsibility to improve the supply chain. 2b The organisation has well established stock management policy. 3b MRP system can cater for agility and flexibility. 4b The organisation has been experiencing disconnect between the manufacturing planning and supply chain planning approach. 5b Our organisational structure supports the supply chain management effectiveness. 6b Training for personnel to use the ERP/MRP system efficiently is needed. 7b Do you believe that there is a direct link between manufacturing planning outcomes and supply chain management. 8b The MRP system as a planning tool is not designed to support engineering changes adequately. 9b Do you believe the MRP system should be supported by other management tools such as Visual Management or Kanban. 10b Manufacturing planning is about scheduling, estimating and forecasting. Do we do all this well? 11b Manufacturing planning is supported by business intelligence such as accurate forecast inputs. 12b Procurement planning resulting from manufacturing planning is handled optimally. 13b Shop-floor control is adequate to track work-in-progress and give status feedback to the MRP system. PART C: INFLUENCE OF PRODUCT DESIGN ENGINEERING ON PRODUCTION DELIVERY TARGETS

Questions Test the applicability of these statements to your

present work situation: - internal perspective Great

extent extent Not at all at Not Very little Very great Somewhat 1c Engineering orders have a big influence on excess stock implication. 2c Our key suppliers are involved in the early stage of product development. 3c Our product design seeks to minimise the number of unique or specialised parts in the system. 4c The organisation adequately ensures that the component management is reflected in the System Engineering Policy for reliability, availability and maintainability. 5c Part management is adequately managed within system engineering. For example can deal adequately with different manufacturing packages - Lead-Free and Leaded component. 6c Our organisation maintains and updates adequately a preferred parts list.

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7c The organisation conducts thorough Production Readiness Reviews (PRR) before products are released into the production line. 8c Our organisation follows basic manufacturing readiness levels criteria for assessing manufacturing maturity and risk. PART D: THE ORGANIZATION CAN REALISE THE FOLLOWING COMPETITIVE ADVANTAGES Questions Test the applicability of these statements to your present work situation: - internal perspective

0%-20% 0%-20% 21%-40% 21%-40% 41%-60% 61%-80% 81%-100% 1d Improvement in the supply chain will increase delivery performance. 2d The organisation can reduce excess stock by improving the supply chain performance. 3d Order fulfillment cycle lead time can be reduced through a improves supply chain performance. 4d Forecast accuracy can be improved by a better performing supply chain within the organisation.

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