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Con~ol Eng. Practice, Vol. 3, No. 1, pp. 43-50, 1995 Copyright © 1995 Els~vi¢~ Science Ltd

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ENTERPRISE MODELLING FOR COMPETITIVE MANUFACTURING

A. Rolstad~s

Department of Production and Quality Engineering, University ofTrondheim, Trondheim, Norway

(Received April 1994; in final form October 1994)

A b s t r a c t . Future enterprises will be chaxacterized by a focus on total quality, globalization, an object-oriented approach, and a business process-oriented approach. The globalization will lead to the "virtual enterprise". The virtual enterprise can obtain a competitive position by defining and reengineering its business processes. However, such reengineering requires an enterprise model. The Factory of the Future (FOF) project developed a theoretical framework for such a model. It is based on a generalization of the Walras model, and defines a number of design choices and performance indicators. This model has been further developed and implemented in the TOPP program. TOPP is a productivity research program for Norwegian manufacturing industry. It studies productivity at two levels: self-audit and external audit. Both use an enterprise model comprising functions, system variables, cycles, and management philosophies. The model has been applied to approximately 50 companies.

K e y Words. Enterprise modelling; production management; manufacturing; productivity; produc- tion planning and control; competitiveness

1. T H E F U T U R E ROLE OF MANUFACTURING

Competi t iveness is a field currently of great con- cern to industry. Several studies have thrown light over the competi t ive balance between enterprises in various geographical regions. One example is the MIT study "Made in America" tha t focuses on the competit iveness of US industry compared to Japan and Europe (Dertouzos et al., 1989). Even more famous is probably the work of Pro- fessor Porter documented in three books (Porter, 1980; Porter, 1985; Porter, 1990) addressing both the national and international levels. Other sig- nificant work could also be mentioned, like Hayes and Wheelwright 's "Restoring our Competi t ive Edge" (Hayes and Wheelwright, 1984), and Sink and Tut t le ' s books on measurement techniques (Sink, 1985; Sink and Tuttle, 1989).

A major reason for the recent focus on competi- tiveness is the Japanese superiority in manufac- turing and quality. The Japanese position in quality compet i t ion is probably best understood from Deming 's work "Out of the Crises" (Dem- ing, 1986). Some have even star ted to talk about a paradigm shift (Solberg, 1989). This paradigm shift can be characterized by a "few impor tant as- pects like:

- Total quality focus - Globalization - Object-oriented approach - Process-oriented approach

The reason for this is a changed market require- ment, perhaps best characterized by:

- Declining markets - Global competi t ion - Customer in focus - Life cycle requirements - Environment protection restrictions

The answer to this is the virtual enterprise (Rol- s t a d ~ , 1994a; Kimura, 1993) with a focus on en- hanced productivity.

Productivity is consequently a field currently of great interest to industry. The current compe- tition on the world market has made companies look very thoroughly on their own performance in a global perspective.

Many managers believe tha t the best potential for the improvement of competitiveness lies in bet ter production management . Therefore new concepts like J I T and O P T have been developed and a new organizational structures involving self-managed teams have been adopted.

The future enterprise is "lean" or "agile". The customer is in focus. All activities in the com- pany must add value for the customer. Otherwise they represent a waste of resources. The customer worries about price, quality, service, and delivery. Total quality management has become a new topic addressing all these problems. Actually it goes far beyond product quality. I t looks at quality

43

44 A. RolstadAs

in every link and every activity. The customer's expectations must be exceeded.

Lean manufacturing is only possible with an ef- ficient and lean production management. High quality must be secured at minimum cost and with the shortest possible delivery time.

The market is international. Each business pro- cess in the company must be benchmarked against the very best, world-wide (Rolstad£s, 1993a). But not only the market is international. The same is true for the company. A successful competi- tive company may place its development activi- ties in region A and its manufacturing in regions B and C. These activities may be moved at any time to the region offering the most favourable conditions. The company will focus on its core business processes and may outsource the rest to more-competitive suppliers.

quires a process-oriented view. The enterprise is considered as a set of interdependent business pro- cesses, rather than a set of functions. To develop and change a company to conform to this new phi- losophy requires a new way of thinking and some tools. The methods of enterprise modelling repre- sent a foundation for implementing such a change, and enterprise modelling techniques therefore be- come a crucial tool.

A number of modelling tools already exist, like CIM-OSA (Kosanke, 1991), IDEFO, SADT, and the GRAI method (Marcotte, 1990). Below, a model developed through a large Norwegian pro- ductivity research program will be described and some of the experience with it will be discussed. It is based on theoretical work carried out in the ESPRIT project FOF - Factory of the Future, and this project will therefore be described first (Rol- stadLs, 1990; Falster, 1989)

These suppliers may have long-term contracts in- cluding technological development. The company will establish a strategic alliance with its suppli- ers. This may even extend to the customers or vendors. This is what is meant by the virtualcom- pany. The virtual company consists of a number of units geographically dispersed but managed as one total unit, although the subunits may be un- der separate management.

The competition leading up to the virtual com- pany can be understood by studying the stake- holders model depicted in Fig. 1 (Rolstad£s, 1994b). This model emphasizes that the company is competing in several marketplaces. Long-term survival and competitiveness are not limited to customers, but depend heavily on attractiveness towards the different stakeholders. In fact, most companies are competing for the best suppliers, the best lenders, the best alliance partners, the best employees, etc. This competition is mainly a mat ter of position and terms in the relationship between company and stakeholder.

Authorities

Suppliers

I Financial institutions

Management ]

Customers J

Employees

Competitors ]

Fig. 1. Stakeholders Model.

This new approach focuses on measuring perfor- mance rather than efficiency. However, this re-

2. THE FOF MODEL

The FOF project was aiming at developing a designer workbench for a manufacturing system. The basic theory for this was a conceptual model of the enterprise (Falster et ai., 1991; Wortmann, 1989).

A conceptual model may be used to de- sign/redesign or test a production system. In ap- plying the model, some information is given as input. This basically includes the products to be delivered and the resources that the company has available. Both may be inadequately, insuf- ficiently or only partly defined. They may all be changed or modified in the process of designing or redesigning the manufacturing system.

The company exists to satisfy a requirement for products from its customers. This demand pat- tern is also assumed to he one of the basic input data of the manufacturing system.

Finally, the company may operate different work- ing hours on different resources. The operating hours are another basic input data, of the same type as demand.

All these input data can be categorized into either design choices (DCs) or experimental input.

In designing/redesigning the system, the various structural design choices are changed to demon- strate different performance. The performance is measured by performance indicators (PIs). In testing the system, the structural design choices are kept fixed, while the operational design choices are changed and applied to measure different per- formances. Testing is used to check how the struc-

Enterprise Modelling for Competitive Manufacturing 45

tural system responds to different operational con- ditions.

In any application of the model, some design choices and input parameters remain fixed, while others are varied. The set of fixed choices and input parameters for a specific application is re- ferred to as the frame conditions under which the model is used.

In summary, the use of the model is visualized in Fig. 2.

VARIABLE Of~RATIONAL

i FIXED J CHOICES DESIGN PERFORMANCE FRAME ~ FIXED REDESIGN INOICATOflS CONOITIONS ~ STRUCTURAL TESTING

J DESIGN VARIABLE CHOOSES f ~

Fig. 2. Input/output in Operation of a Model of a one of a kind System.

For reasons of simplification, and to reflect ma- jor different design objectives, it is convenient to consider the model from different views. In this context, three views have been selected:

Workflow view, defining and describing the workflow through the production system. Resource view, defining and describing the human and physical resources in the system, and how these resources respond to different input and system designs. Organizational/decisional view, defining the decisions and decision-making structure in the total organization of the manufacturing system.

These views are integrated into a conceptual model, or more correctly a conceptual framework, that ties these fagmented theories together.

Table 1 Terminology of the Conceptual Model.

Theoretical framework Design framework Conceptual Reference mode l represents available theory, e.g., Walrasian model

A Design Reference M o d e l represents the final "product" of project, e.g., the workbench

Model of Pr imit ive S y s t e m represents forms of data for elements

A1 Enti ty Model represents description scheme for a particular real- llfe situation by design choices and performance indicators

Model of Constra ints / Topology

A2 Relat ionship M o d e l represents heuristics to guide synthesis. Cover "all" design knowledge about One of a Kind Production (OKP). The variables in the model are DC, PI or IV and causal relationships between the variables. Thus the model increases the designer's awareness of variables which play a role in designing/redesigning redesigning particular OKP systems

Particular M o d e l represents an abstract example of a particular case

Particular M o d e l represents an existing or conceived real-life situation. Shows particular DC which has been made in a particular case

The conceptual framework has to distinguish clearly between "theory" which has to do with " to describe" (i.e., analysis of a model) and "design" which has to do with " to make" (i.e., synthesis, analysis, and optimization). A terminology has been proposed to deal with these two "worlds" as shown in Table 1.

The theoretical and the design framework exist at two different levels:

a. The level of reference models b. The level of particular models

Reference models represent the available theory. These models link general design choices (DCs) via intermediate variables (IVs) to general perfor- mance indicators (PIs). Particular models repre- sent an abstract example of a particular case or an existing or conceived real-life situation. These models show particular design choices which have

been made in a particular case. They enable the designer to specify alternatives for these design choices, and to compute the consequences of these alternatives within a limited domain of knowledge.

The reference models can be split on two sub- levels, A1 and A2. In the theoretical framework these levels represent:

A1 - The primitive system, i.e., the various com- ponents of the system.

A2 - The constraints, i.e., how the system com- ponents are connected together.

In the design framework the counterpart to the primitive system is denoted an entity model. An entity model thus represents a description scheme for a particular real-life situation by design choices and performance indicators. The counterpart to the constraints is called a relationship model. The relationship model represents a heuristic to in-

4 6 A. Rolsm~s

terconnect design choices, performance indicators and intermediate/independent variables of the en- ti ty model.

The components of a design reference model are depicted in Fig. 3. The idea is that design choices (DC) are changed. The effect on the OKP sys- tem is measured by the performance indicators (PI). The relationship model defines the relation- ship between DCs and PIs.

PERFORMANCE INDICATORS (PI}

INTER/~DIATE- VARIABLE (IV]

DESIGN CF~ICES (DC)

PRIMITIVE SYST~ (UNIT MODEL)

CONSTRAINTS (RELATIONSHIP MODEL)

PRIMITIVE SYSTEM (UNIT MODEL)

Fig. 3. Components of a Design Reference Model.

In accordance with the Walrasian model (Franksen, 1969; Franksen, 1972), there are two basic data structures:

- P-graph associated with the products to be produced.

- R-graph associated with the resources used for production.

Both graphs may be represented by a hiearchical structure showing bill of material, end operations of the product and the groups of resources.

- Management.

Production and engineering are both primary pro- cesses requiring the same functions. The only dif- ference is the flow, i.e., materials or technical in- formation.

In general, four functions may be distinguished for these processes:

Make (Produce, process) Move (Transport, send)

- Verify (Inspect, check) - Wait (Store, file).

The functions in the management process are all concerned with the planning and control of pro- duction and engineering (i.e., decision making). The production and engineering process can be thought of as that of creating and satisfying re- quirements. With this point of departure, there are four groups of management functions:

- Identify requirement - Plan requirement - Order requirement - Report.

The first three comprise a manufacturing cycle: identify - plan - order. The last one is monitoring.

The FOF model still remains a theoretical frame- work which needs to be developed further. The basic data structures must be further explored and the basic functions must be more clearly defined and refined into a hierarchy. The model as such, not being complete, has not yet been directly ap- plied to a real life problem. However, it has been used for a demonstration case of the FOF design- ers workbench (Hirsch, 1991).

The P-graph as described here, represents the pri- mary flow in the production process. It repre- sents operations to be performed and defines the requirement for resources. The R-graph defines the supply of resources in a similar way.

The design choices will comprise:

- Products - Resources - Organization and systems.

The latter may be referred to as the coordination and synchronization of resources and products in time, as defined by the GRAI method (Marcotte, 1990).

In addition to the basic data structure, the model must define a set of functions. For this purpose it is convenient to distinguish between three pro- cesses:

- Production - Engineering

3. THE T O P P MODEL

T O P P is a research program sponsored by the Norwegian Research Council (Rolstadks, 1994b; Rolstad£s, 1993b). The overall goal of T O P P is to "Focus on the total productivity for the whole en- terprise and stimulate an industrial climate that improves competitiveness".

Important key objectives and key issues are:

- Time - Quality - Flexibility - Total cost.

The TOPP-program consists of the following sub- programs:

- Developing company productivity and com- petitiveness study

- I m p l e m e n t i n g industrial improvement ac-

Enterprise Modelling for Competitive Manufacturing

tions - Developing knowledge through research projects

- Long-term competence development.

TOPP has developed two sets of methodologies for measuring productivity in a company (Moseng and Bredrup, 1993):

a. Self-audit based on a questionnaire answered by the companies (TOPP, 1992c).

b. External audit performed by experts ana- lyzing the companies (TOPP, 1992b; TOPP, 1992a).

There are some similarities between TOPP and the methodology used for awards like Malcom Baldrige, Deming, and the European Quality Award. However, TOPP focuses on more aspects concerning the competitiveness of the whole com- pany, while the awards mentioned have their main focus on quality.

Both methodologies require an enterprise model suitable for understanding and measuring differ- ences in performance between companies. The TOPP model is based on the FOF-model com- prising design choices and performance indicators (see Fig. 3).

Design choices axe products, resources (people, facilities, equipment), and systems/organizations. Examples of performance indicators are:

Total profitability, Throughput time, Inven- tory level, Reject rate, and Number of cus- tomer complaints. Design choices and performance indicators interlink through a relationship model that may be seen from different viewpoints. TOPP refers to the design choices as system variables.

To study an enterprise, it is necessary to look at the functions performed on the system variables. To represent these functions, the "value adding chain" defined by Porter (Porter, 1980) may be suitable. However, since TOPP addresses manu- facturing industry, it can be made more specific, as shown in Fig. 4.

The description of the functions along the value adding chain (Fig. 4) represents a static picture of the company. For a study of productivity per- formance, this may be insufficient. An enterprise may be "world champion" within each function, but it may still be less competitive. The reason is, of course, what is happening on the transfer from one function to another, and how functions may be run concurrently. This more-dynamic as- pect may be taken into account by following the various flows in the company. These flows are re- ferred to as cycles. Fig. 5 shows the duality be-

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47

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Fig. 4. Functions in the Value adding Chain (Moseng et ai.,1993}.

tween functions and "cycles". A possible set of cycles could be:

- Material cycle (follow materials through the enterprise)

- Order cycle (follow a customer order through the company) Product cycle (follow a product through its whole life from idea to destruction) Supplier cycle (follow all steps through the in- terface between the enterprise and a supplier for a purchase)

- Customer cycle (follow all steps through the interface between the enterprise and a cus- tomer for a sales order).

It may he sufficient to study system variables, functions and cycles. However, TOPP has added a fourth dimension to this: management philoso- phies. A management philosophy is a way of thinking and an object of focus that will affect the total performance of the company. Examples of such management philosophies are shown in Fig. 5.

m lU~qAn m m w ~ m

TOTAl. QL~TY

i .U l t W 1mE CaNIlk~J I~ IO~U. CUI~Vml M T I F ~ C N T I~ ~ MVOdmUI~T

!i mm,m ITIIXTI~ ~A'4CII

m n 1

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Fig. 5. Analysis Model.

The main control variables in a company are time, cost, quantity, and quality. The "Time-based Management" philosophy puts the focus on time.

48 A. Rolstad~ts

If all times (lead time, throughput time, etc.) are minimal, it is assumed that the other con- trol variables will also be optimal. Of course, several of these management philosophies overlap. They also overlap with cycles, functions, and sys- tem variables. However, this overlap should not be of great concern. Actually it will help one to understand the underlying reasons for differences in competitiveness between enterprises and thus prove necessary for benchmarking purposes.

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s. FWANC t~ STAIffY

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The model is summarized in Fig. 5. Functions and system variables are studied across cycles and management philosophies. They are evaluated by determining indicators. In the same way cycles and management philosophies are studied across functions and system variables. Again, perfor- mance is measured by indicators.

The self-audit uses a questionnaire which is an- swered by each company. The self-audit mainly studies system variables and functions. However, the aspect of cycles is included to some extent by looking at collaboration and interfaces between the various functions. The questionnaire consists of three parts (TOPP, 1992b):

- Part 1 Facts about the company, products, cost, finance, manpower, capacities, production, etc.

- Part 2 Overall evaluation of different functions and system variables. This part is answered con- fidentially by 20 individuals in the company

- Part 3 Detailed evaluation of primary and support functions and system variables (products, fa- cilities, personnel, etc.). This part is an- swered by specialist groups in the company. Management is represented in all groups.

The scale of assessments comprises an interval from 1 to 7 with 7 as "best practice".

The external audit is done using external experts. An expert team analyzes the company and scores indicators on a scale from 1 to 7 with 7 still as "best practice". The company is analyzed in two ways:

- Company-level using indicators focusing on the overall performance of the whole enter- prise

- Company "split-up", using indicators focus- ing on limited areas of the company

The company-level analysis is split into four sets of indicators as shown in Fig. 6 (TOPP, 1992b). The company split-up level is split according to the model described in Fig. 5, i.e., system variables, function, cycles, and management philosophies.

Within each area (i.e., system variables) a num- ber of items have been identified (i.e., products, facilities etc.). For each item, up to 10 indicators are given. Each indicator is supported by a check- list of key questions. The expert team scores on each indicator, based on this list. The scores are weighed together depending on their importance, and one key indicator is given for the item. This may be aggregated to an area indicator, but this is only done for the company-level approach.

Some 50 companies have so far replied to the self- audit questionnaire. The results have been uti- lized to launch productivity improvement projects in the companies and to direct research in the field. The enterprises' own evaluation shows that the best potentials for improvement are within (Waag¢ eL al., 1993):

- Procurement - Process planning - Production planning and control - Product development - Quality management

These priorities have been derived from a gap- analysis based on statistics from the T O P P self- audit. The companies have indicated both the importance of each function and system variable and their performance for the same. Where per- formance is below average and importance above average, there exists a gap that needs to be filled by research and development. The data from the T O P P statistics are shown in Fig. 7.

The T O P P model has been refined to a methodol- ogy for enterprise self assessment. The approach is business process oriented. A number of stan- dard processes are described and the individual company will select what it finds suitable. For each process, areas of detailed analysis are iden- tified indicating metrics, analysis techniques, and priorities.

The external audit has been developed into a benchmarking approach which is currently being tested in a number of enterprises.

Enterprise Modelling for Compeddve Manufacturing

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Fig. 7. Importance-Performance-Gap-Analysis.

4. CONCLUSIONS

In order to improve competitiveness of a com- pany, productivity studies are necessary. There are many ways to approach this, either by self- audit, external audit or benchmarking. These types of processes when introduced into an en- terprise, focus on productivity and stimulate an attitute of continuous improvement.

Although a variety of techniques to enhance pro- ductivity development exist, they all have one thing in common. They all require that a model of the enterprise and the processes inside and outside the enterprise can be constructed. The quality of the model will determine the quality of the analy- sis. Various modelling approaches exist. In TOPP it has proven necessary to use several overlapping models. Each model represents a different view on the enterprise. For example, TOPP has found it necessary to focus on functions, system variables, cycles, and management philosophies.

5. REFERENCES

49

Deming, W.E. (1986). Out of the Crisis: Quality, Productivity, and Competitive Position. Cam- bridge University Press. Cambridge.

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Falster, P. (1989). The conceptual model and re- lated topics, fof/dth.

Falster, P., A. Rolstad~s and H. Wortmann (1991). Fof production theory, wp2 report: De- sign of a conceptual model.

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Porter, M.E. (1980). Competitive Strategy: Tech- niques for Analyzing Industries and Competi- tors. Free Press. New York.

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Rolstad~s, A. (1994b). Performance Management - A Business Process Benehmarking Approach. Chapman & Hall. London.

Sink, D. Scott (1985). Productivity Management: Planning, Measurement, and Evaluation, Con- trol, and Improvement. John Wiley & Sons. New York.

Sink, D. Scott and Thomas C. Turtle (1989). Plan- ning and Measurement in your Organization of the Future. Industrial Engineering and Manage- ment Press. Norcross.

Solberg, J.J. (1989). Production planning and scheduling in tim. In: (G:X. Ritte, ed.) Infor- mation Processing'89.

TOPP (1992a). TOPP - A productivity Pro- gram for manufacturing Industries, Metode- h:mdbok (in Norwegian). University of Trond-

50 A. RolstA_dAs

heim. Trondheim. TOPP (1992b). TOPP - A productivity Program

for manufacturing Industries, Operativ h~ndbok for bedriflsanalyse (in Norwegian}. University of Trondheim. Trondheim.

TOPP (1992c). Topp - a productivity program for manufacturing industries, questionnaire for an- alyzing competitiveness (in Norwegian}

Wnng¢, S.J., N.O. Orjas~ter, A.B. Skjelnes and P.G P.G. Pettersen (1993). Sterke og svake sider red norske teknologibedrifler (in Norwe- gian}. ORAL, NTH. Trondheim.

Wortmann, J.C. (1989). Towards an integrated theory for design, production, and production management of complex, one of a kind products in factory of the future.