Towards a more efficient Supply Chain: A study at Bombardier Rail Control Solutions with a focus on centralizing their Supply Chain

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Towards a more efficient Supply Chain

A study at Bombardier Rail Control Solutions with a focus on centralizing their Supply Chain

Jonathan Eriksson

Master of Science Thesis

Supervisor Bombardier: Bastiaan Westhoff Supervisor KTH: Per Johansson

Examiner: Lasse Wingård

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Acknowledgement

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

opportunity to write this Master Thesis for them. From day one I have been treated well and received great help regarding anything needed. There are some people who have given me the extra help and support, which I want to direct an extra big thank to.

Bastiaan Westhoff

Firstly, I would like to thank my supervisor and manager at Bombardier Rail Control Solutions. Bastiaan, I am so grateful that I have had the opportunity to meet, work and develop together with you during these months. You have been a role model through your leadership and drive and also been more helpful than I ever could have expected, both through this thesis and on a personal level through giving me insights and priceless tips regarding life and career. I feel a lot of gratitude towards you and I will always be grateful for this time.

Anders Johansson

Anders, thank you for always being there and sharing your time, knowledge and expertise with me. You have been the person I always have been able to go to and discuss all my ideas.

I feel a lot of gratitude for everything you have shared with me, and just so you know, you are not that old.

Dan Persson

Dan, thank you for always supporting me ever since we worked together. I am very grateful that you always are there for me in life no matter what, which this time has been regarding your insightful tips for this thesis as well as on a personal level.

Per Johansson

Last but not least, Per who has been my supervisor from KTH. I am grateful for your support and advices when I have been stuck. I am also thankful for your feedback and that you also have prioritized me when needed. Thank you!

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Abstract

To remain competitive in today’s business environment, companies must continuously become more efficient and improve their business. This can be achieved through developing and streamlining a company's Supply Chain.

Bombardier Rail Control Solutions(RCS) has grown mainly through acquisitions, however, the acquisitions have not been integrated in a good way into their existing Supply Chain. This has result in a decentralized Supply Chain where RCS’s different sites are using different ERP systems. The consequence of this has led to an increased manual workload, a lack of visibility between sites and an inefficient Supply Chain.

The goal of this project has been to identify how Bombardier RCS can develop and streamline its Supply Chain by centralizing different parts of it, e.g. ERP systems and different processes. To achieve this, there has been a close collaboration with Bombardier through the project through interviews, meetings, discussions together with studying literature. In addition, presentations have been presented continuously to ensure that the results have followed Bombardier RCS’s goal. RCS’s historical data has also been analyzed.

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

improvement areas have been identified. Issues that have been solved include centralizing master data and how to centralize processes at Bombardier RCS. Improvement areas include the benefits of centralizing Bombardier RCS Supply Chain and the advantages with a central warehouse. Bombardier RCS should also centralize their entire ERP system to enable global MRP calculations and so on. Furthermore, it has been identified that there is an improvement potential regarding Bombardier RCS's delivery performance, which can be solved by either integrating RCS’s Supply Chain or/and through keeping products on stock.

The conclusion is that Bombardier RCS should centralize their Supply Chain step by step since it is impossible to centralize everything at once. By centralizing the Supply Chain, this can reduce manual workload, create visibility between different sites, contribute to a better delivery performance and streamline the Supply Chain. By doing this, Bombardier RCS can get more competitive, which can contribute to a continued strong market position in the industry.

Key words: Supply Chain Management, ERP, MRP, MPS, Master data, Centralization, On- Time Delivery, Supply Chain Integration, Warehouse, Inventory

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Sammanfattning

För att vara konkurrenskraftig i dagens företagsklimat måste företag ständigt förbättras och bli effektivare. Detta kan uppnås bland annat genom att utveckla och effektivisera ett företags värdekedja.

Bombardier Rail Control Soutions (RCS) har växt framförallt genom företagsförvärv, dock har förvärven inte integrerats på ett bra sätt in i den existerande värdekedjan. Detta har resulterat i en decentraliserad värdekedja där RCS:s olika arbetsplatser använder olika ERP system. Konsekvensen av detta har lett till en ökande manuell arbetsbelastning, brist på synlighet mellan siter och en ineffektiv värdekedja.

Målsättningen med det här projektet har varit att identifiera hur Bombardier RCS kan utveckla och effektivisera sin värdekedja genom att centralisera olika delar av den,

exempelvis ERP system och olika processer. För att uppnå detta har ett nära samarbete med Bombardier genom projektet varit centralt med intervjuer, möten och diskussioner,

tillsammans med en litteraturstudie. Dessutom har presentationer framförts kontinuerligt för att säkerställa att resultaten följt Bombardier RCS:s mål. RCS:s historiska data har också analyserats.

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

Problem som har lösts är bland annat att centralisera RCS:s masterdata och hur man kan centralisera processer hos Bombardier RCS. Förbättringsområden är bland annat fördelarna med att centralisera Bombardier RCS:s värdekedja och vinsterna med ett centrallager.

Bombardier RCS bör även centralisera deras ERP-system för att möjliggöra globala MRP- beräkningar och så vidare. Vidare har det identifierats att det finns en

förbättringspotential för Bombardier RCS:s leveransprecision som kan lösas dels med att integrera värdekedjan (med leverantörer) eller/och lagerlägga artiklar.

Slutsatsen är att Bombardier RCS bör centralisera sin värdekedja stegvis eftersom det är omöjligt att centralisera allt på en gång. Genom en centraliserad värdekedja kan det minimera den manuella arbetsbelastningen, skapa visibilitet mellan olika arbetsplatser, bidra till en bättre leveransprecision och effektivisera värdekedjan. Genom att göra detta kommer Bombardier RCS bli mer konkurrenskraftig, vilket kommer bidra till en fortsatt stark marknadsposition i branschen.

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

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1 Introduction

This chapter contains a description of the research area and gives insights why this project was initiated. Further, the problem is introduced, as well as the aim of this report and its limitations.

1.1 Background

In today’s competitive global business world, companies need to find new ways to improve their business to remain competitive. One improvement area is a company’s Supply Chain, which can be streamlined through evaluation and change of its design. A more efficient Supply Chain can contribute to increased margins and gain competitive advantages (Chopra

& Meindl, 2010).

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

centralizing parts of its ERP system and Supply Chain. Through a centralized Supply Chain companies can both reduce their total cost and make their Supply Chain more efficient. Areas that can be improved, are for instance, material in stock, warehousing and increased

transparency.

Bombardier Transportation is one of the world’s largest companies providing rail solutions and one of its division is RCS. RCS is a world leader in its area, which is developing, engineering and installing signaling safety systems, products and service to enable safe and efficient operation of rail networks and trains.

Currently, RCS has a decentralized Supply Chain divided into more than 10 sites. This decentralization has created an inefficient Supply Chain through having multiple Enterprise Resource Planning (ERP) systems. These together have caused a non-visibility between sites, high manual workload and non-standardized processes in RCS.

ERP systems are used to handle data, information and communication requirements of whole organizations and are therefore essential for a successful Supply Chain Management. The idea of Supply Chain Management is to have a strategy to handle the flow of information, material and services through the whole chain, from raw material suppliers to factories and warehouses to the end customers. The ability to be able to manage the whole Supply Chain through the introduction of ERP systems made the integration of the enterprise management efforts a central issue for companies. (Shtub & Karni, 2010)

1.2 Problem Description

Currently, Bombardier RCS has a decentralized and scattered procurement and Supply Chain organization in four different regions. RCS is approximately running 150 projects in 40 different countries. The main reason for the decentralized organization is because RCS has

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grown much through acquisitions, which have not been integrated into RCS’s Supply Chain properly. The acquisitions have instead continued working with their current systems.

RCS is both manufacturing their products in-house and outsourcing production to different suppliers. The products that are manufactured are mainly made to order as Bombardier RCS business is mainly based on projects. Besides the project based sales, RCS are also having an aftermarket with direct sales (spare parts and services), though, this part of the business has its own Supply Chain challenges as it’s a combination of make to order and make to stock.

RCS does not have a standardized direct sales policy, which has caused that their service level and inventory is not at desired level.

Furthermore, the decentralization has caused that RCS is facing different issues, such as having seven different ERP’s globally, scattered inventory, high manual workload (no MRP or warehouse integration), lack of global inventory visibility, lack of process standardization and lack of common master data. As the business and the complexity is increasing, the current Supply Chain model is more and more under pressure.

Consequently, RCS wants to change from a decentralized procurement organization to a centralized organization, since today’s solution with many different ERP’s and a

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

1.3 Purpose and Objectives

The overall objective of this project is to define a harmonized global concept for Bombardier RCS’s Supply Chain. This will be done through investigating how a centralized Supply Chain and ERP landscape can streamline RCS Supply Chain and optimize their inventory and logistic cost structure.

Though, this issue cannot be done in one shot. The goal of the research findings is that it will be used as the foundation of how RCS can tackle previously mentioned issues regarding their Supply Chain. The developed concepts shall also meet jointly developed requirements, which will be based on requests from concerned employees. The concepts will help Bombardier RCS understand and improve their business in the shape of a more centralized Supply Chain with more transparency between the different sites as well as making their Supply Chain more efficient.

1.4 Research Questions

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

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

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

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1.5 Limitations

● This project is delimited from evaluating which ERP system that would be best for Bombardier RCS, due to that Bombardier RCS previously had determined SAP as their ERP system. The report will, therefore describe some modules in SAP that could be used to help Bombardier RCS centralize their ERP systems. In this report, the included parts of an ERP system are master data, MPS and MRP, due to that this is the area which Bombardier RCS requested.

● In the project, the focus has been on the logistic part of a centralization and has been delimited from, for instance, finance, the production part and the production plants.

● The work has only focused on the pros and cons of having a centralized hub on a high-level and not focused where to have it and how to choose a centralized warehouse.

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2 Methodology

This chapter presents selected methods to answer the research questions and to achieve the purpose of this project. The method is divided into three parts: research setting and design, a literature review and data collection methods divided into subheadings. Each of these

methods is described below.

2.1 Research Setting and Design

This master thesis project was initiated by the Global Logistics Manager at Bombardier RCS who also has been my supervisor through this project. After the project was initiated, my manager and I reached a joint agreement for this thesis. Thereafter, a strategy to answer the research questions and to deliver useful insights to Bombardier RCS was developed. This method was divided into different approaches to cover different areas.

Through this project, I was offered an office space and have been working full time at the office to ensure fast communication which also gave the opportunity to be part of daily meetings and discussions. The presence at Bombardier has been a huge part of the method since it has given me a better insight of their business and what was needed for this work to create value for Bombardier RCS.

Initially, it was important to build a relationship with the employees at RCS and get an understanding of the organization, the processes and their Supply Chain. Through this phase, it was realized that the approach of this thesis would change a bit with a deeper focus on different improvements that could be achieved through a centralization. From this stage, the research questions evolved.

After an understanding of the company was built and when the goal was identified, a literature review was done simultaneously with the data collection, which consisted of meetings, interviews, general discussions, introductions to RCS’s different systems and access to different databases. This approach was used for the whole project.

2.2 Literature Review

Throughout the project, the literature has been reviewed since each phase has required different kinds of literature. Initially, the literature review had a broad approach to get a deeper understanding of areas as Supply Chain, ERP and how they are combined.

Thereafter, when the research questions and the aim of the report were defined, the literature review was narrowed down to focus on the first key areas. These areas were to gain a deeper understanding of Supply Chain, how a Centralized and Decentralized system work and their benefits followed by how an integrated Supply Chain can be developed.

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When the topics were identified and investigated, the literature review continued with investigating ERP system and which parts that should be focused on in this report, which were identified as master data, Master Production Scheduling and Master Requirement Planning, including different planning setups for MRP.

The literature was mainly found through KTH library’s database and keywords have for instance been: “ERP”, “Supply Chain Management”, “SAP”, “MRP”, “MPS”, “Master Data”, “Forecasting”, “Centralization”, “Decentralization”, “Supply Chain Integration” and combination of those.

2.3 Data Collection Methods

There have been different data collection methods in form of interviews, presentations, meetings, general discussions, previous experiences and RCS’s tools, Data Collection and Models.

2.3.1 Interviews

The main initial phase of the method was through conducting an introduction with the Global Logistics Manager and interviews with the Logistics Managers of each region. Through the interviews, the problem could be defined more precisely and the questions can be found in Appendix I.

The completed interviews were qualitative and semi-structured, which means that questions were used in an interview guide (see Appendix I). Since the interview was semi-structured, questions could be adapted to the informant during the interviews and supplementary questions could be added. (Blomkvist & Hallin, 2014)

The interviews were only used initially in this project, and instead, other data collection methods appeared such as presentations, meetings and general discussions. The reason why I used these methods was that they are more natural and generic.

2.3.2 Presentations, Meetings and General discussions

Bombardier RCS invited me like any other team member from day one and since then I was at the office full time. This included participation in presentations, meetings and daily discussions regarding the project and other topics. I have also had many presentations and meetings where I got direct feedback on my work and its different parts. Furthermore, the daily work has also minimized the delays in responses, since I have had the opportunity to visit concerned person when needed to solve my problem instead of having to arrange an interview-meeting. This has led to fast communication and problem-solving which has reinforced the quality of the result.

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2.3.3 Previous Experiences

This master thesis project required knowledge of many different areas within ERP, Supply Chain and Logistics as well as Excel-skills. Thanks to previous work experience within these areas, the learning curve was shortened.

2.3.4 RCS’s tools, Data Collection and Models

Bombardier RCS has many different tools and data they are working with daily, which I got access to as well as instructions on how to use them. These tools and data gave me the opportunity to look into RCS’s processes and do analyses.

Through inputs from concerned employees globally together with analyzing RCS’s historical data some Excel-models were developed, which were: OTD-model and Forecast-model which are shown in 7 Analysis of Bombardier Historical Data. The formulas for these findings are not included in this report, due to that confidential data was used.

Other confidential data has also been used in form of internal calculations regarding transportation and warehousing savings with a central warehouse.

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3 Supply Chain Management

This chapter describes what a Supply Chain is, the difference between a centralized versus a decentralized approach and how inventory can decrease using a central warehouse. The chapter ends with describing how a Supply Chain can be integrated.

3.1 Description of Supply Chain Management

Supply Chain Management is the coordination of information, material and financial, within and across companies. It is defined as a set of procedures in which several companies,

including suppliers, producers and distributors work together to produce a finished product to the end customer. Through designing the Supply Chain network correctly, companies can reduce cost, enhanced responsiveness and increase customer service level. It is complicated to design a Supply Chain since it requires integration of procurement, supply, and

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

Supply Chain Management strive to integrate all key activities in a business and coordinate the whole Supply Chain from product development, purchase to customer support. Supply Chain Management also involves several corporate functions to make the businesses cost- effective and satisfy customer demand, which is shown in Figure 1 below. (Cooper et al, 1997)

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

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3.2 Centralized versus Decentralized Supply Chain

There are usually two methods for companies to make decisions for their Supply Chain, either centralized decision making, where the decisions are made centrally at the corporate level and the decentralized decision making where the decisions are made at business unit level. (Li et al, 2014)

3.2.1 Decentralized System

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

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

Figure 2 - Traditional Decentralized System (Shanker, 2012)

In the decentralized system, each member of each business unit is taking decisions with the focus on their warehouse since it is treated as an individual company, where the aim is to reduce their own inventory. Though, since each local decentralized warehouse is working independently, it increases local control and can increase the local appearance. (Duan & Liao, 2013)

3.2.2 Centralized System

A centralized system is when a company maintains one centralized warehouse instead of having several warehouses spread out (Li et al, 2014), see Figure 3 below. In the centralized system, the decisions are made centrally and consider all business units of the company together. (Duan & Liao, 2013)

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Figure 3 - Centralized System (Shanker, 2012)

A centralized Supply Chain is more cost-effective since the decisions are made to minimize the entire Supply Chain inventory cost instead of having decisions based on each business unit (Duan & Liao, 2013). Furthermore, the centralized warehouse has lower costs regarding extra rent, extra staff, maintenance of multiple locations etc. compared to a decentralized warehouse (Haliday, 2014).

3.2.3 Warehousing Square Root Law of Inventory Management

The total amount of inventory increases in conjunction with the number of warehousing locations. This is because the stock level needs to be higher with more warehouses to satisfy customers, compared to only having one warehouse. (Haliday, 2014)

When companies grow, they can choose to have multiple warehouses to be closer to their customers, which can enable a better customer service. Though, since each warehouse is at an independent location with its own customer base, each warehouse needs its own inventory which ties up capital in stock. (Haliday, 2014)

Instead, a company can choose to store all stock in a central warehouse, which will eliminate the duplicated safety stock that occurs when having multiple warehouses. Though, this can imply longer shipping times which may decrease customer satisfaction. (Haliday, 2014)

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Through using above information, this can be summed up in Formula 1 below, which is an estimate of how the number of warehouse locations affects a company’s overall inventory requirements.

𝑋2 = 𝑋1 ∗ √𝑛2/𝑛1

𝑛1 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑓𝑎𝑐𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑛2 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑢𝑡𝑢𝑟𝑒 𝑓𝑎𝑐𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑋1 = 𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑋2 = 𝑓𝑢𝑡𝑢𝑟𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

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

3.3 Integration of Supply Chain

An integrated Supply Chain can be defined as a process of collaboration and interaction between companies in a Supply Chain where they work together to reach a mutually

acceptable outcome. According to He & Lai, an external integration is more powerful than an internal integration of the Supply Chain. Two basic categories of the external integration are the integration with suppliers and customers, meanwhile, the strategic and operational integration can be considered as two major strategies of external integration. The operational integration integrates interdependent processes and information flows, which helps

companies to improve efficiency and effectiveness. The strategic integration is to integrate and create closeness in the relationship between a company and both its customers and suppliers. This includes strategic alliances and partnerships where the partners discuss common interests and shared visions to develop it into collective actions. Though, since the Supply Chain integration is a complicated process, it can be hard to understand its outcome.

(He & Lai, 2012)

According to He & Lai (2012), through sharing information about key processing activities the Supply Chain integration will be enhanced. By integrating the Supply Chain,

manufacturers can react more flexibly to customer demands, which can decrease delivery time and reduce inventory. An integrated Supply Chain can also increase key practical resources like improving market access by information networks and strengthening logistics operations. (He & Lai, 2012)

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4 Business Processes – ERP systems

This chapter describes the critical parts that are initially needed for a logistic ERP system implementation, which are Master Data, MPS and MRP.

4.1 Master Data

Master data is the foundation of each ERP system and without correct master data, it is not possible to control and plan an enterprise. Master data includes all important business information, for example, business partners (customers and vendors), articles, bills of materials and prices & conditions. All business activities such as orders, payment receipts, transport orders and quotes refer to the master data, which make the master data a basis for all coordination. (Kurbel, 2013)

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

Within an ERP system, the master data is used and integrated in a cross-application manner, which reduces the time needed to process business transactions. This, because the master data in the ERP system is integrated automatically into the processes and information for the purchasing, distribution and warehousing processes as well as operative functions and corporate areas can be used communally. (Kappauf et al, 2011)

In the material master records, all fundamental parameters for the management of each material are included and its use in procurement, production, distribution and warehouse logistics. The most crucial master data for control and planning are regarding:

●parts

●product structures

●manufacturing structures

The master data for parts has a central role in manufacturing application systems since it comprises assemblies, components, raw materials, end products and more. Hence, a part contains all parts of the end products including all components needed to produce it. (Kurbel, 2013)

The master data for product structures displays what different parts are needed to make up a product. They can be shown as trees, see Figure 4 below:

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Figure 4 - Product Structure Trees (Kurbel, 2013)

The binary tree in Figure 4 can be seen as a single-level of a bill of materials (BOM). A BOM is basically a product structure together with fundamental information about the tree’s nodes (e.g., part master data) in a list form. In the list, each row shows a part, which is described by part number, part name, quantity needed for the upper part and so on. Through this, the BOM describes the structure of a component or a product. (Kurbel, 2013)

Companies are today producing different product variants, which means that the products vary in some features. This implies that a company can sell almost the same product with an adjustment, for instance, different engines or different color, see Figure 5 below:

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

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4.2 Master Production Scheduling (MPS)

The MPS is the expected production scheduled for independent demand items per planning period by quantity. These independent items are products demanded by the market. The independent items consist of different components and parts, named dependent demand which is linked to the Material Requirement Planning, which will be described in 4.3 Material Requirement Planning (MRP). (Shtub & Karni, 2010)

MPS combines the demand for independent requirements based on customer orders and forecast, which is shown in Figure 6 below. The MPS is linked to the MRP process and drives it either to work orders or purchase orders. MPS is important since it includes the trade-off, of either having make-to-stock and make-to-order and the use of inventories.

(Shtub & Karni, 2010)

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

Since MPS includes the gross requirements for independent demand items, these requirements are broken down in the MRP into time-phased net requirements to secure material availability. (Shtub & Karni, 2010)

4.3 Material Requirements Planning (MRP)

Companies are using MRP to ensure that materials are available for production and assembly in quantities to allow production procedures and sales processes to be accomplished in an accurate and timely aspect. There are three main sub-functions for MRP, which are:

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

-to generate a procurement recommendation for Purchasing and Manufacturing

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

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

(Kappauf et al, 2011)

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Usually, planning requirements are conducted for each plant, but it is possible to perform planning requirements on the level of a location, planning area or as a supply network planning. Included planning procedures are:

● total planning

● single-level individual planning

● multi-level individual planning

● interactive planning

● multi-level individual customer planning

● individual project planning (Kappauf et al, 2011)

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

(Shtub & Karni, 2010) In Figure 7 below, the other principles of the MRP are shown and its integration with production. This process can be described in following steps:

● The sales Process or Demand Management figures the Independent Requirement, described in 4.2 Master Production Scheduling (MPS).

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

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

• A BOM explosion of products creates the dependent requirements, which is shown in an example in Figure 8 below. In the example, it is shown that the housing is externally procured (purchase requisition) and the rest are in-house produced (planned order). When a planning runs, it goes through all levels in the picture and executes a total planning process. (Kappauf et al, 2011)

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

These MRP procedures are either deterministic or consumption-based, where they for the required quantities align existing stock, capacities and expected or confirmed stock additions.

(Kappauf et al, 2011)

4.3.1 MRP Deterministic Procedure

The deterministic material requirements planning is based on the requirements from current and future sales:

● customer orders

● dependent requirements obtained through BOM explosion

● material reservations

● planned independent requirements

Through using the deterministic MRP a company can in general work with low safety stock because the company know the exact required quantities. (Kappauf et al, 2011) The process is following below steps:

1. A net requirements calculation is conducted by the MRP system where requirements are compensated by the available stock and planned stock additions. If the required quantity is bigger than the available and planned stock, the systems generate procurement recommendations.

2. The system determines for each material its optimal batch size for the purchase order or production. Thereafter the scheduling for procurement recommendation is based on delivery dates (for purchase order) or production date (for manufacture).

3. The dependent requirements are thereafter identified for internally produced materials are conducted through a BOM explosion.

4. Includes additional requirements for the deterministic planning process, for instance through using a forecast calculation to compensate for excess consumption of components in production. (Kappauf et al, 2011)

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4.3.2 MRP Consumption-Based Procedure

The consumption-based planning is based on historical consumption. Two different methods of using historical consumption data to forecast future consumption are:

● Reorder point procedure

A company is using a reorder point to ensure having products for their customers and the procurement is triggered when the stock (plan stock and fixed additions) gets below the reorder point. This point needs to be high enough to cover periods until the products have been replaced. Otherwise, this can cause production or supply shortfalls and therefore it might be necessary to include a safety stock in the reorder point.

(Kappauf et al, 2011)

● Forecast-based planning

The forecast-based planning conducts a forecast for future requirements which forms the required values for the planning run. These values influence the requirement planning directly and the forecast calculations are on regular basis, which enables that the requirement adjusts to consumption behavior. (Kappauf et al, 2011)

Forecast Methods

Two common forecasting methods are moving averages and exponential smoothing. The moving averages method calculates the average of the past n periods to predict the demand for the material in the next period. Through using this data, the formula below Formula 2 can be used with following conditions:

- k-1 = current period

- mj = demand that occurred in period j

- Vk = forecast for period k, and is the average of the n most recent actual demands - The sum is from period k-n to k-1 (Kurbel, 2013)

𝑉_𝑘 = 1

𝑛∗ ∑ 𝑚_𝑗

𝑘−1

𝑗=𝑘−𝑛

Formula 2 - Moving Average (Kurbel, 2013)

Exponential smoothing instead, can be configured to weight more recent demand more than previous demand. The formula for exponential smoothing is shown in Formula 3 below and can be used with following conditions:

- Vk = forecast value is equal the last forecast value plus the weighted deviation of the actual demand mk-1

- α influences the method's behavior and can be a value between 0 and 1. If α is close to 1 the forecast will be close to the actual demand in period k-1 and the opposite applies to small α

𝑉_𝑘 = 𝑉_𝑘−1+ 𝛼 ∗ (𝑚_𝑘−1− 𝑣_𝑘−1)

Formula 3 - Exponential Smoothing (Kurbel, 2013)

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5 Bombardier RCS’s Supply Chain Today

In this chapter Bombardier RCS’s Supply Chain is analyzed, both through presentations with the Global Logistics Manager and the Regional Logistics Managers from three different regions, North, South and APAC (Asia Pacific).

5.1 Multiple Supply Chain Sites - Meeting with Global Logistics Manager

Bombardier RCS has a decentralized Supply Chain with many different sites that have different ERP systems, see Figure 9 below.

Figure 9 - Multiple Supply Chain Sites

Through having many different sites with different ERP systems, this has led to a scattered inventory. Furthermore, each site is working as its own legal business unit and since each of them is having different ERP systems, this has caused inefficiency and prevent visibility in the Supply Chain. The different sites are also having different master data for the materials, which reinforce the lack of visibility but also the cooperation between the sites.

5.2 Interviews and Presentations with Logistics Managers for each Region

To understand this decentralized issue on a region basis, presentations followed by interviews have been done with three Logistics Managers from three different regions. The interview questions can be found in Appendix I. The regions represented were APAC (Asia-Pacific), South (Southern Europe and Africa) and North (Northern Europe). From the presentations and interviews, four common topics were identified that are causing inefficiency in today’s Supply Chain. The four common topics were regarding the ERP systems, Inventories, Warehouses and Compliance. Below you can find a summary of the main findings.

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5.2.1 System

All the three Logistics Managers have realized that the current ERP setup is not healthy for the company and causes a high manual workload. The Logistics Manager of APAC thought that there is no good connection between the different systems and functions and that the many ERP systems are causing problems for the logistic part of the organization.

Furthermore, the APAC manager mentioned that data from two different ERP systems is needed for their region and the data from them needs to be consolidated in Excel for reporting. The Logistics Manager of region South mentioned that all data handling is done through Excel and explains that the different ERP systems are lacking common master data, which causes non-visibility between each region's stock. Therefore, there is not a warehouse integration between the different regions. According to the Logistics Manager of Region North, it will not be possible to centralize the Supply Chain without a centralized ERP system. A centralized ERP system would create visibility and reduce manual work, such as master data and supplier data since it only needs to be administered in one system instead of all the current systems. In a common ERP system, it would also be easier to transfer stock and make the inventory management more efficient.

5.2.2 Inventory

The common problem between the different regions is that they need to reduce their physical inventory and reduce the material in store. Region South would also like to optimize their material flow with direct deliveries. Region North’s biggest issue regarding inventory is Last Time Buys (LTBs), due to that they need to buy large quantities at the same time as RCS’s products have a long lifetime (up to 30 years). This causes trapped cash which results in a bad rotation and movements for RCS’s products.

5.2.3 Warehouse

Regarding the warehousing, both the Logistics Managers from region South and North would prefer a centralized warehouse instead of having warehouses scattered, which creates

inefficiency. The Logistics Manager of Region North also mentioned that with a centralized warehouse, it would create a better transparency, which for instance would ease stock

transfers. The Logistics Manager from APAC explains that their problem is to ensure that the existing warehouses are following Bombardier’s standard guidelines. According to the Logistics Manager of Region North, one benefit with a central warehouse would be the savings in sharing the Minimum Order Quantities and Last Time Buys since only one region/warehouse would have to buy these instead of four.

5.2.4 Compliance

All the Logistics Managers confirmed that they are not specialist in Trade Compliance and that those tasks consume a lot of time. The Logistics Manager of Region South expressed that there are possible improvements within this topic.

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6 How to Centralize Bombardier RCS’s ERP Systems

This chapter describes which parts of RCS’s ERP system that initially needs to be centralized, which are RCS’s master data and MRP.

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

The centralization of RCS’s master data can be divided into two areas, new products and old products that are already in the system. The first area will be solved easily according to the Global Logistics Manager, since new products will have the same material number in all regions. The second area is more challenging according to the Logistics Manager of Region North and The Global Logistics Manager, since each region has had their own material numbers for the same products. This means that even if the different regions are selling the same product, they are using different material number, which causes a problem for the centralized MRP set-up. Furthermore, due to an expensive and complex homologation in different countries on material number level, regions are not keen to change their material numbers. Therefore, another solution is needed to tackle this problem. According to the Logistics Manager of Region North and the Global Logistics manager, they are unsure how to solve this problem and agree that it will be a challenge to solve the master data in SAP to make the MRP process possible and efficient.

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

Through the meeting and discussion with the Supply Chain Specialist, two methods were developed. One method was more complex, meanwhile, the second method was less complex and would be easier to implement.

The first complex method would include supersession and interchangeability FFF (Form-Fit- Function) classes in SAP. Regarding the FFF, an FFF class link a group of fully

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

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

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A problem that might occur with the FFF is that the customer might need to verify that the correct material number has arrived, and if the materials have different material numbers on them, that would not satisfy the safety requirements since their documentation might be linked to another material number. The interviewee thought that this process would be too advanced and complicated for Bombardier RCS if their master data issue was not of high priority and was critical for the company. Furthermore, using supersession and

interchangeability FFF would require either a separate add-on or an extra module in SAP, which would be costly and require further knowledge and competence

The second method is shown in Figure 11 below. To centralize the material number RCS needs to have a material number centrally. To be able to convert this centralized material number, RCS needs to do a production order (in SAP) in the centralized warehouse or unit to change the material to each region’s material number. This region material’s BOM will consist of the centralized material (Material A), a label for the region’s material number (B/C/D/E) and packaging material. The production order includes re-label the product with for instance a labeler.

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

components) in the central warehouse. This could happen if RCS’s customer, for instance, cancels an order of product B in Region North and product A already has been converted to product B through the production order. Through the disassembly production order, Product B would be separated from Product A, which could be used again for another region. This process can thereafter be incorporated with the MRP calculation which will be discussed further in 6.3 MRP analysis and meetings with Global Logistics Manager.

Figure 11 - Overview of centralizing old Master Data in SAP

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6.3 MRP Analysis and Meetings with Global Logistics Manager

As a solution for the master data issue was developed, the analysis continued with analyzing how RCS was working with their current ERP systems and tools. Through the analysis, a model for their MRP was developed through interviews and cooperation with the Global Logistics Manager and a project team. To implement a centralized MRP process, RCS needs input from different sources, which is shown in Figure 12 below. Firstly, RCS needs input from Engineering and Project Management in terms of manufacturing BOM for the materials and the schedules for each project. Secondly, procurement and logistics need to ensure that the system has correct master data and that the inventory levels are correct.

Figure 12 - Project ERP Landscape

Since a solution for handling the different region’s material number was developed, shown in 6.2 How to Centralize RCS’s Master Data - Meeting and Discussion with Supply Chain Specialist from AstraZeneca, it also needed to be adapt to an MRP environment, see Figure 13 below. The figure can be described in following steps:

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

2. Each region’s BOM will be broken down and the MRP will calculate and sum the dependent requirement of each component.

3. This requirement will thereafter be summed up in the Central MRP, which thereafter will result in PO: s to the supplier.

Additionally, through keeping products at their central number as long as possible, this will reduce tied capital and increase flexibility.

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

When the different input sources were defined and a solution for the master data was developed, a more detailed MRP set-up with action was worked out, see Figure 14. This MRP implementation shall be done in several steps. Bombardier shall:

1. Create an interface between Primavera (The Project Management Tool) and SAP for upload of projects to SAP MPS.

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

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

Figure 14 - MRP Landscape

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7 Analysis of Bombardier Historical Data (Region X)

In this chapter has the historical purchase order data and sales data for Region X’s direct sales been analyzed. This data has been used to develop an OTD-chart. Furthermore,

interviews have been conducted to be able to develop an accurate direct sales stock policy to meet requested demand.

7.1 Current Situation

Since RCS is a project-based company, their focus has been on their project sales and not their direct sales. From the interviews with the Logistics Managers, it appeared that the different regions did not reach as good On-Time Delivery (OTD) as was shown in their chart, see result for Region X in Chart 1 below. Therefore, an analysis of RCS historical sales data for direct sales was done through developing an OTD-model to understand RCS’s delivery accuracy. For this, one region’s data was used to set a standard which thereafter could be replicated.

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

7.2 On-Time Delivery

Through analyzing Bombardier RCS’s historical purchase order data for Region X, it was found that Bombardier RCS’s suppliers do not achieve their target, see Chart 2 below. The Chart can be described as follows, which also applies for Chart 3:

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

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

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

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

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

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

Since Chart 2 shows that RCS’s suppliers do not deliver in time, that would imply that RCS should not be able to deliver in time, if they do not keep products in stock. From analyzing RCS’s historical sales for Region X, RCS’s OTD could be identified, see Chart 3 below. It is shown that Chart 3 shows a lower OTD compared to Chart 1. Therefore, it was necessary to investigate how this performance could be improved.

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

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

According to the Supply Chain Developer from AstraZeneca, there are several factors to consider regarding a direct sales stock policy. Firstly, it is important to understand what products that are critical for a company’s customers and how to handle this. This can be solved either by keeping customer critical products in stock or through having Service Level Agreement (SLA) with customers.

Secondly, RCS should analyze how their products are selling and find patterns for them. For instance, that could be to identify products that have continuous sales or products that corresponds to a high percentage of the total sales. Thereafter, RCS could create a forecast for these and one possible solution would be to use exponential smoothing. For these forecasted products, RCS could either keep these products in stock or push warehousing to suppliers. Then the suppliers could either keep finished goods in stock or keep components with long lead time in stock, based on agreements with RCS.

Thirdly, RCS should develop a close cooperation with suppliers and key customers to ensure that RCS will deliver on time. This can, for instance, be that suppliers are keeping long lead time components in stock to reduce the overall lead time for finished goods.

7.3.1 Critical products - Interview with Manager of After Sales

Today, RCS is offering a SLA to all their customers, which ensure that their customers systems always will work. In these agreements, RCS make sure to keep critical products in stock for each customer. Since these agreements exist, the After Sales Manager believe that to be able to ensure these products, the customer needs to have a SLA-agreement since these critical products are not sold regularly. The After Sales Manager points out that it is

important that RCS’s customers with SLA get benefited. Because if RCS would ensure that we had these products in stock anyway, customers would not use RCS’s SLA-agreement.

7.3.2 Forecasting model for continuous sales

Through analyzing the historical sales data for Region X’s direct sales, a certain number of materials were identified that should be forecasted to reduce lead time and improve OTD.

There are two opportunities to use this forecast, either Bombardier RCS can keep these products in stock or provide the forecast to their suppliers. RCS can thereafter let them either build inventory on long lead time components or finished goods. Depending on what lead times RCS want to promise their customers, they can adjust these agreements. Using forecast can also improve bargain power with the suppliers as well as spread the demand over the year which can smooth their suppliers’ workload.

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The proposed main criteria to forecast a product is that the product shall be sold regularly (at least be sold every quarter). Furthermore, other parameters that also affects the forecast is the quantity sold and the value of the product. Since a product that is forecasted fulfils regularly sales, this reduces the risk of keeping the products in stock and would increase the delivery accuracy of the products. In Chart 4 below, the forecast is shown based on historical data.

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

- ending the forecast 6 months after last period (month) - the confidence interval was set at 85%

- filled missing points using interpolation

Chart 4 - Example of forecast

7.3.3 Close Cooperation with Suppliers

According to the Logistics Manager of Region North, Bombardier RCS want to reduce their inventory level and the amount of tied-up capital. Therefore, RCS shall improve their cooperation with their suppliers and aim to push the inventory to them. This will, of course, cause a risk for the suppliers, which might lead to increased prices, though the After Sales Manager does not see any problem with this if RCS can improve their delivery times. What needs to be defined is which product that shall be kept as finished goods and for which products long lead time components shall be kept in stock. The Logistics Manager of Region North’s philosophy is to store materials as early as possible in the process to have the greatest flexibility. Though, the Logistics Manager of Region North mentioned that this cooperation with RCS different suppliers depends on the value and volume RCS is ordering. For instance, The Logistics Manager of Region North points out that for suppliers where RCS is not a majority customer and is ordering have long lead times products, RCS should keep an annual demand in stock to ensure availability to RCS’s customers.

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8 How to Handle the Time-Consuming Compliance Process

This chapter explains how Bombardier RCS’s work with their decentralized Compliance process and how this process has evolved through this project.

8.1 Current Compliance Process

As previously mentioned, the different Logistics Managers mentioned that the Compliance process consumes much time and it was discovered that each region did the same work, which is shown in Figure 15.

Figure 15 - Current Compliance Process

8.2 Centralization of Compliance Process

Through discussions with the Logistics Manager of Region North and the Global Logistics Manager, it appeared that it is possible to centralize this process. The process is shown in Figure 16, and the process was developed to optimize RCS’s process for collecting documents from suppliers. The process is done in following steps:

1. Each Regional Logistics Manager will provide a list with data to a Centrally Responsible, who will consolidate a report.

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

3. Thereafter, the Suppliers will provide the documents to the Centrally Responsible who will update this into a centralized database which will be reachable for each region.

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

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Figure 16 - Centralized Compliance Process

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9 Discussion

This chapter discusses the centralized approach based on the knowledge from the literature review in combination with the insights and results from the analysis and data collection.

9.1 Centralized Supply Chain with a Centralized ERP System

Through the discussions, interviews and presentations, it appeared that there are many reasons why Bombardier RCS should centralize and integrate their Supply Chain. As shown in the literature, RCS should integrate their operational interdependent processes and

information flows, since they do not have that in today’s organization. The reason is that the organization has been decentralized and each business unit has taken decisions as an

individual company and have done what is best for them, which is how a decentralized system works according to Duan & Liao (2013).

Furthermore, according to the interviews with the Logistics Managers, RCS’s decentralized ERP systems have caused problems such as lack of cooperation and visibility between the different sites. It appeared that a centralized ERP system could harmonize RCS’s Supply Chain since it could create a holistic visibility, decrease inventory and decrease manual workload. Therefore, RCS should centralize their ERP systems from Figure 9 to a centralized approach and have a standard ERP system which is shown in Figure 17 below.

Figure 17 - Centralized Supply Chain

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9.2 Centralized Warehouse

From the interviews, it appeared that the Logistics Managers need to decrease their inventory levels to increase free cash flow. Through having a centralized Supply Chain with a

Centralized Warehouse this would be possible since a centralized warehouse would decrease tied-up material. This can be explained by using Formula 1, which will be shown in an example. If Bombardier RCS’s would have four warehouses where each warehouse would require 25 pieces in average of material X in safety stock to serve their customers, that would result in 100 pieces totally. If then RCS would consolidate the inventory into one central warehouse, the amount of inventory of X would be:

𝑋 = 100 ∗ √1/4 → 𝑋 = 50 This reduces RCS inventory by 50%.

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

effective, since the decisions are made to minimize the entire Supply Chain Inventory instead of decisions based on each business unit. Though, according to Li et al (2014), a centralized warehouse can create delays while sending materials to a company's different branches, in RCS’s case to their different sites. Although, from the On-Time Delivery analysis, it was found that RCS already had delays and that their OTD could be improved.

As previous mentioned, the Logistics Managers need to decrease their stock levels as well as improving their OTD and through a centralized approach it would be possible to improve both. A centralized warehouse could decrease the overall stock level and still achieve the same delivery performance through consolidating the stock in fewer warehouses shown in 3.2.3 Warehousing Square Root Law of Inventory Management. This would result in a decreased overall stock level, but increased consolidated stock level in one warehouse compared to the current stock level at each business unit. Therefore, this could increase the flexibility and possibly improve the OTD.

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

Keeping a decentralized approach could keep the responsiveness to local customers and imply both more flexibility and shorter lead-times. Though this is not a critical problem for RCS, the problem is rather that the On-Time Delivery is not accurate and according to the interviews with the Logistics Managers, they thought that a centralized warehouse with a standard ERP system would lead to a more flexible system with better delivery performance.

Furthermore, a centralized approach with one centralized warehouse would decrease the costs in terms of decreased transportation costs through collaborate transportations routes and warehousing costs according to internal calculations (these can’t be presented due to confidential data). To change the decentralized approach to a centralized could, therefore, increase responsiveness at the same time as lowering the costs. Furthermore, according to Haliday (2014), a centralized warehouse would lower costs regarding rent, extra staff and maintenance of multiple locations.

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9.3 How to Centralize RCS’s ERP System

Through a centralized ERP system, this would increase the visibility between the different sites and ease the analysis of data and inventory levels if the master data problem gets fixed.

Though, through meetings, interviews and the literature review, the important parts of an ERP system that is needed initially to optimize inventory and logistics cost were identified.

These were master data (the keystone for any ERP system) and an MRP system integrated with current programs used within the organization.

9.3.1 Master Data

Both the literature study and interviews agreed on the criticality of having correct master data to control and plan an enterprise. This is also critical for a centralized MRP process and RCS should through their implementation and centralization focus on ensuring correct master data, especially since different sites are using different material numbers for the same product.

Though, the issue with different material numbers for the same product will be solved by using one of the methods in 6.2 How to Centralize RCS’s Master Data - Meeting and

Discussion with Supply Chain Specialist from AstraZeneca. Both methods should satisfy RCS needs to be able to include the different material numbers in the master data and the MRP setup. Though, since no other requirements were identified through the different interviews and meetings, the re-label method is proposed due to it is more cost-efficient and less advanced. For new materials, RCS should develop a centralized process for the creation of new material numbers to ensure that all the different sites will use the same material number.

A centralized Supply Chin will also reduce the time needed to process business transactions, because the data will be integrated in a cross-application manner. The maintenance of the data will also require less time, since the master data will be the same across the company and could be handled from one central site instead of separately at the different sites. Another benefit is that since the master data could be handled from one site, it would reduce the human risk due to fewer systems to handle. This will be fulfilled through having one generic SAP-system that will have the same master data. Having a centralized master data will contribute to a more efficient MRP setup.

9.3.2 MRP setup

The second part of how RCS should centralize their ERP system is to centralize their MRP, which is shown in 6.3 MRP Analysis and meetings with Global Logistics Manager. Through accomplish a centralized master data and an MRP setup this will give benefits such as:

● increased negotiating power, since the material could be ordered in larger quantities when conducted in one system

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

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

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

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Basically, each site will have their requirements as shown in Figure 13 which then will be summarized centrally in a total planning, which is aligned with what Kappauf et al (2011) are mentioning as performing planning requirements in a supply network.

Through interviews, meetings and the literature, RCS should implement the MRP process through following the best practice according to the literature. The importance rather lies in how to integrate RCS’s other systems regarding their PDM system where they will store the E-BOM and how RCS can integrate their project management tool for scheduling of projects.

Though, from meetings where IS (Information System) has participated, it has occurred that it is possible to integrate these side tools with SAP. This together will create a more efficient logistics flow for RCS.

9.4 Centralized Direct Sales Stock Policy

In 7 Analysis of Bombardiers RCS Historical Data (Region X), it was identified that RCS has not focused enough on their direct sales and that they are lacking a centralized direct sales stock policy. The reason was identified as that RCS’s direct sales stock differentiates from the main business, which is made to order (project based sales). Though, since the regions are not reaching desired On-Time Delivery level and that the old report is proved presenting incorrectly, RCS shall take care of their direct sales stock issue and change their approach.

Through comparing the current OTD report in Chart 1 with the new developed one, Chart 3 it is shown that Bombardier RCS’s does not reach desired On-Time Delivery. This, is affected by that RCS suppliers do not deliver accurately and on time, shown in Chart 2.

Thereby, a correspondence between how RCS deliver with how RCS suppliers deliver was identified. Though, the chart for the Region X is overall worse than the supplier chart.

The root cause was identified as RCS’s Supply Chain solution is not sustainable, since the different regions have a restriction to not keep inventory at the same time as RCS is

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

Additionally, today’s measurement is not accurate due to that different customers are having different shipping conditions. For instance, some customers are having CIP (Carriage and Insurance Paid) which means that the delivery date equals the date the product arrives at the customer, meanwhile other customers mainly have the delivery date when the goods leave RCS’s warehouse. This, of course, implies that for customers that are having CIP, a transportation time need to be included to measure the OTD correctly.

As mentioned in 7 Analysis of Bombardiers RCS Historical Data (Region X) there are certain options to solve this issue. RCS could either:

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

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

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

Towards a more efficient Supply Chain: A study at Bombardier Rail Control Solutions with a focus on centralizing their Supply Chain