IMPROVING ORDER MANAGEMENT SYSTEM IN PUMP INDUSTRY

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1 IMPROVING ORDER MANAGEMENT SYSTEM IN PUMP INDUSTRY M. Dachyar and Listya Zufri Department of Industrial Engineering, Faculty of Engineering, University of Indonesia, Indonesia ABSTRACT Order management process is one of supply chain management process, which has an important role related to the customer satisfaction and profit of the company. The company should reengineering their business process to compete with other company and responsive to customer needs. IDEF0 and Business Process Reengineering (BPR) method is used tomap, review, and analyze existing business process. In this research, the existing and new business process design is simulated using Igrafx and the result shows process time reduced by 16, 66%. Keywords: management information system, order management, business process reengineering, enterprise resource planning. 1. INTRODUCTION Today, the growth of manufacturing industries in Indonesia are likely to decline, it makes a lot of companies started looking for ways to be able to continuously exist and survive. Indonesia declining industrial growth can be seen on a Nikkei Markit 2015 report which showed that the growth of manufacturing industry from September 2014 until May 2015 tended to decrease (Nikkei Markit, 2015). To deal with decreased growth in manufacturing industry, companies had began competing for efficiency in their business processes in order to reduce costs and compete with competitors in similar fields. The company began compiling various strategies, one of strategy that can be done to improve their business process are applying information technology. One of the companies that want to implementing information technology as their strategy is Pump Company. Pump Company sells productsusing assembly production assembly-to-order production pattern, where it provides various types of pumps in accordance with the specifications ordered by the customer. Pump Company produces three different kinds of pumps, such as: end suction, multi state, and high technology pump, each pumps has a wide variety of diameter sizes. The pump company has faced several problems, which are : data input process is still manual, difficult to know the stock of goods, miss communication between divisions because of information can t be seen by entire division, and the customer received the product over customer request delivery. The company should consider to applied information technology to provide ease of access to information in all the divisions. An applied information technology that can be used to allow actual data to be visible to and integrate processes between all divisions is the Enterprise Resource Planning (ERP) System. This system can help organizations to integrate the supply chain process, receiving, inventory management, customer order management and other business functions (Sumner, 2014). Beside of having some advantages in providing all division to be easy to access all data, the ability to integrate information across divisions, increases business process performance, etc. There are some obstacles in the implementation of ERP systems, such as the expensive cost, takes a long time to implement ERP System, require the full commitment of top- management, and requires training of employees. Therefore, in order to successfully implement the ERP system we needed to Design business process at Pump Company to. Designing ERP is needed to make standard process. This research was conducted in order management process. Order management was chosen because the process is directly related to customer satisfaction that will be affected to the company s profit. 2. LITERATURE REVIEW 2.1 Order fulfilment In order fulfilment or order management we can found all activities that related to defining customer requirements, designing the logistics network and fulfil customer orders (Croxton, 2006). Order fulfilment process are including all process like, procurement, fulfilment, delivery, service to customer demand. The activity undertaken in order fulfilment business process is divided into 5 sub- process, such as: (1) Enter Order, (2) Process Order, (3) Handle Documentation, (4) Fill Order, (5) Delivery Order. (Waller, Woolsey, & Seaker, 2006). 2.2 Enterprise resource planning ERP system is a software package that is integrated with a number of business processes, such as manufacturing, supply chain, sales, finance, human resources, and budgeting (Schniederjans & Yadav, 2011). On the other hand, the ERP system is also a comprehensive software package that seeks to integrate a series of processes and business functions to present a comprehensive holistic view of the business from a single information and information technology architecture (Kamhawi, 2007). Benefit of ERP are reduced cycle time, reduced cost operations, make transaction process faster, increased customer serviceness, enable access data through entire company, and Provide communication between organization, customer, and supplier. (Sumner, 2014). Besides many benefits gained by ERP system, there are also disadvantages of this system if we are not pay attention in planning and implementing this system. The 4917

2 disadvantages of ERP system are : adequacy of new business process design., centralized structure, difficulty in customizing., high implementation costs, matching ERP with business needs, technology readiness of organization, time consuming, employee resistance to change, does not allow for non-standard processng, inadequate training. (Özkarabacak, Çevik, & Gökşen, 2014). 2.3 Business process reengineering Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service and speed (Hammer & Champy, 1993). BPR has several characteristics, such as: (1) Fundamental, which focuses on the process of what the company to achieve its objectives and how the process is carried out, (2) Radical, resolve the root causes and designing new solutions, (3) Dramatic, the impact of the changes made through the BPR is very large and significant, (4) process, BPR - oriented investigation process. (Hammer & Champy, 1993). There were severals company that have implemented BPR, such as Milk Company (Dachyar & Christy, 2014), International Business Machines Corporation (IBM) (Hammer & Champy, 1993), and Ford Motor Company (Harvard Business Review, 1990) 2.4 Integrated definition for function modelling (IDEF0) Integrated Definition for Function Modeling (IDEF) is a method that useful to modelling information in Software Engineering (SE), business process, and process business improvement (Aguilar-Saven, 2004). Depiction of a multilevel (hierarhical) conducted with IDEF0 model. At the highest level is called context diagram that contains one activity that shows the entire system as a single activity and also Context Diagram also commonly called Diagram A0 or Parent Diagram. For more detailed activity called as child diagram or Diagram A1, A2, dsb. (JOVAN, REDRAG, & VEIS, 2008). In IDEF0, we used flow chart to explained sequence of each activity. Flow Chart is a graph that have symbol to show the operations, data, flow direction, and the equipment that used to identify, analyze and solve problems (Aguilar-Saven, 2004). 3. RESEARCH METHODOLOGY This research is uses Consolidated Methodology approach that consist of (Muthu, Whitman, & Cheraghi, Business Process Reengineering: a Consolidated Methodology, 2006): a) Prepare for Reengineering b) Map and Analyze As-Is Process c) Design To-Be Process d) Implement Reengineering Process e) Improve Process Continuously Detail description about consolidated methodology will be explained in Figure-1. Below. Figure-1. Flow chart consolidated methodology. 3.1 Prepare for engineering First stage begins with Prepare for Engineering. In this phase we need to understand Order Management System in Pump Company. In order to understand order management system in Pump Company we need to know about background of this company, order management system in Pump Company, and division that related to order management system. This company is a joint venture company between Indonesia and Japan. In Indonesia, the company was incorporated in the gorup companies that consist of pump manufacturing company, Casting Iron and Non-Ferrous Metals Company, and Engineering Service Company. After that, we conducted an interview with some managers about process flow in order management system and problem that could appeared during order management process. Then performed a preliminary analysis of the problems that occur from interviews, procedure process, and company s documents (flow chart, customer order, and customer s delivery time). Then, the objective of this study was designed to reduced delivery time (shipping). 3.2Map and analyze as-is process In this step we need to identify existing process and perform simulations to see a process that does not produce appropriate output and non added value activity. Order management system in Pump Company consist of five mains process, namely prepare for receive request, request process, processing goods, shipping process, and payment process Map as-is process with IDEF0 technique To understand about the depiction of the beginning process, IDEF0 model can be written in two from, such as, Node Trees and node Index. In this picture below we can see Node Index in Level 0 (Order Management System). 4918

3 Node Index pada Level 0 (Sistem Order Management) A1 ReceiveRequest A2 Request Process A3 Processing Goods A4 ShippingProcess A5 Payment Process Figure-2. Node Index in Level 0 (Order Management System). c) Sales Make Sales Order Node index in level A1 (Receive request) 1 Customer Propose Purchase Order 2 Sales Receive Purchase Order 3 Sales Make Sales Order Node index in level A2 (Request process) A21 Making Approval Document 2 Giving Approval Document to Sales 3 Giving Approval Document to Customer 4 Customer Contact Sales 5 Purchase Order Confirmations 6 Giving Sales Order to PPIC Node index in level A21 (Make approval document) 1 Making Part List 2 Making Form Approval 3 Making Pump Documentation Figure-3. Map existing order management system using IDEF0 technique. In IDEF0 Technique, There are fours components that used to describe an activity or process, namely ICOM components (Input, Control, Output, and Mechanism). ICOM components in Order management System are: a. Input. Form Purchase Order b. Control. Term payment, term delivery, pump kanban, approval document, inventory in warehouse, shipping schedule, purchase order, Material Requirement Planning (MRP), dan term price. c. Output. Payment. d. Mechanism. PPIC, Engineering, Accounting Production, Warehouse, dan Customer. Node index in level A1 (Receive request) a) Customer Propose Purchase Order b) Sales Receive Purchase Order Node index in level A3 (Processing goods) 1 Receiving Sales Order 2 Production Planning 3 Production Process 4 Storing Goods in Warehouse 5 Planning for Shipping Node index in level A4 (Shipping process) 1 Making Delivery Order 2 Delivery Order Signatures 3 Making Invoice 4 Making Tax Invoice 5 Delivery Goods Node index in level A5 (Payment process) 1 Customer Receiving Goods 2 Customer Pay the Bill 3 Customer Giving Payment Receipt 4 Receiving Payment Result as-is process To make an analysis of the existing order management system (As-Is), we performed simulation of exisiting business process using Igrafx software. This software is designed capture and simulates business process. Table-1. Result as-is process simulation using Igrafx Software. As-Is Order Management Process Transaction statistic (Days) Count Avg cycle Avg work Avg wait Avg block ,72 6,34 122,39 0,03 After doing some interviews and maping as-is process, we found out that are several problems that happened in this company. a. Internal factors: There are some redundant processes The document that deliver to a division is not fastly process. 4919

4 The company did not have a system to integrate information from one division to another. Input Process conducted manually. Regulation process that takes a long time. b. External factors: Estimated process time usually did not match with actual time. The production capacity in Pump Company is not meet the customer request. 3.3 Map and analyze to-be process In this stage, we are searching for any possibilities to improve order management system in Pump Company. After that, we map process improvement (To-Be- Process) using IDEF0 model Determinate improvement strategy To make business process improvement strategy, we used various ways, such as: a. Practice to Design New Process. (Mansar, 2007). b. ESIA Method (Eliminate, Simplify, Integrate, Automate). c. Benchmarking generic (best practice) (Mahtani, 2006) Best Practice to design process improvement consist of ten best practices, such as: Task elimination Eliminate unnecessary tast from a business process. Task composition Combine small task into composite tasks and divided large tasks into workable smaller tasks. Integral technology Try to elevate physical constraints ina business process by applying new technology. Enpower Give workers most of the decision making authority and reduced middle management. Order assignment Let workers perform as many steps as possible for single order. Move tasks to more appropriate places. Specialist-generalist Consider to makeresourcesmore specialize or more generalist. Integration Consider the integration with a business process of the customer or a supplier. Parllelism Consider wether tasks may be executed in parallel. Numerical involvement Minimize the numberof departements, groups, and persons involved in a business process. From Benchmarking best practice, ESIA Model, and Best practice to design new proces we get several strategies that will be used to conducted new process. Those strategies to improve order management system can be seen in Table-2. Table-2. Result of new process improvement simulation. Strategy Accounting is making delivery order and invoice Eleminate Purchase Order Confirmation storage process Request Process Eliminate making part list process and combine making approval documents process and making documentation process The responsibility of signature process is moved to Accounting Division payment process Best practices Numerical Involvement Eleminate Benchmarking,, Automate Eleminate, Task Composition Numerical Involvement Benchmarking, Automate After making several startegies, we designed a scenario that contains of some combinations of these strategies. There are four scenarios that can be implemented in this company. These scenarios are based on the analysis of the level of importance of each strategy derived from brainstorming with three company s manager To-be process simulation result Results of all scenarios of new order management process design that simulated using Igrafx Software contained in Table

5 Table-3. Result of new process improvement simulation. Skenario Count Avg cycle Avg work Avg wait Avg block ,64 105,36 0, ,27 4,65 102,61 0, ,04 4,67 114,37 0, ,95 4,75 118,2 0,05 After perform the simulation, the result of average cycle will appear in the Igrafx Software. Next, we calculated the efficiency of the process by compared average cycle of each scenario (To-Be Process) to the existing process (As-Is Process). Analyses of these strategies based on Business Redesign Best Practice are: a. Accounting is making delivery order and invoice (Numerical Involvement ) Previously, making delivery order was sales division s job, but to accelerate the process further, we decided to move the process into accounting division s job. After that, making invoice will be faster than before, because the number of division that involved in this process is reduced. Purchase order confirmation was eliminated because PO confirmation have the same process (inspection) as making approval documents process. c. The responsibility of signature process is moved to Accounting Division Making part list can be eliminated because this process is also performed in the production planning process. after that, because making pump documentation is only a pump inspection we can combine this tasl with making approval documents. d. Request Process (Benchmarking,, Automate) In this process we added the booked sales orders and releases for picking process to facilitate the subsequent process so the process becomes more efficient. b. Eleminate Purchase Order Confirmation (Eleminate) e. Payment Process (Benchmarking, Automate) Scenario Table-4. Scenario of strategies that used in designing the to-be process order management Strategy1 Strategy 2 Strategy 3 Strategy 4 Strategy 5 Strategy 6 Strategy 7 Accounting is making delivery order and invoice Eleminate Purchase Order Confirmation storage process Request Process Eliminate making part list process and combine making approval documents process and making documentation process The responsibility of signature process is moved to Accounting Division payment process Added two processes, which are accounting give payment receipt to sales and sales make payment confirmation to customer. From five strategies that have been proposed, there are some proposals to support this company to implemented these strategies, such as: a. Implementing Information System like Enterprise Resource Planning (ERP) to manage data storage, facilitated sharing data for entire company, and allows company to tracked data history. Challenges: There are still several processes that have not been standardized, its implementation requires a lot of money, and a necessary training required for the employees to use this software. b. Implementing Information System like Enterprise Resource Planning (ERP) to manage data storage, facilitated sharing data for entire company, and allows company to tracked data history. Challenges: There are still several processes that have not been standardized, its implementation requires a lot of money, and a necessary training required for the employees to use this software. 4921

6 c. Implementing Information System like Enterprise Resource Planning (ERP) to manage data storage, facilitated sharing data for entire company, and allows company to tracked data history. Challenges: There are still several processes that have not been standardized, its implementation requires a lot of money, and a necessary training required for the employees to use this software. d. Reviewing Kanban Pumps that used as safety stock and making forecast demand Challenges: There are various types of pumps that company s offered and customer demand is fluctuating so it s hard to predict or forecast customer demand Map the new order management system using IDEF0 model We perform mapping for the new order management system to show the flow of information in tobe process new process). ICOM components of Parent A0 diagram of the design of the new order management system are: a. Input: Form Purchase Order b. Control: (1) Term payment, (2) Term delivery, (3) Kanban Pump, (4) Approval Document, (5) Inventory in warehouse, (6) Shipping schedule, (7) Purchase order, (8) MRP, (9)Term price c. Output: Payment Receipt d. Mechanism: (1) Engineering, (2) PPIC (3) Sales, (4) Customer (5) Warehouse (6) Produksi, (7) Accounting, (8) Shipping Agent, (9) ERP System. In Figure-4, we can see component-component that constructed in To-Be process and activities that conducted in order management system. Figure-4. Map to-be processusing IDEF0 model. Table-5. Comparison between as-is and to-be process. Subsproses Request Process Processing Goods As-Is A serial process thet conducted by Engineering division are make parts lists, create document approval, and make documentation Engineering division give sales order to PPIC There are purchase order confirmation process PPIC received a sales order, checks the stock and then proceed with the raw material Comparison between as-is and to-be process To-Be Eliminate making part process. Then, combine make approval documents and make pump documentation into review engineering process Flow of information is changed, so the Sales have the responsibility to give sales order to PPIC Terjadi perubahan alur, sehingga sales yang memberikan sales order ke PPIC Eliminate Purchase Order Confirmation When PPIC receive sales order the processwill continue to examine the state of the pump, booked orders and release orders for the pick. 4922

7 Shipping Process Sales division is responsible to Make delivery order Signature of delivery order will performed by sales, PPIC, engineering, accounting, security guard, warehouse, CEO of the company Accounting division is responsible to Make delivery order Signature of delivery order will performed by Sales, Accounting, PPIC, Warehouse, dan Engineering 4. DISCUSSIONS This research resulted scenario two as design process improvement for order management system in Pump Company. Compared to another scenario, these scenarios have the shortest cycle time. The combination of strategies in these scenario were accounting is make delivery order and invoice, eliminate purchase order confirmation, resequencing storage process, resequencing request process, eliminate making part list process and combine making approval documents process and making documentation process, the responsibility of signature process is moved to Accounting Division, resequencing payment process. If we want to be succeeded to implemented this scenario into the company we have to review standard time to perform each process, be careful in selecting ERP vendor, learn about another ERP packaged that related to order management system, such as Inventory management, Account Receivable, etc, and give employee s training to operate this system and review technology and organization readiness to this system. 5. CONCLUSIONS This research resulted four scenarios to design new process improvement in pump company.the best scenario is scenario number two with the combination of the process of removing the division that made the permission, reduce the number of divisions that signed a permit, abolish the activity of a confirmation of purchase order, and make parts list. Efficiency percentage of the second scenario simulation is 16.66% when compared with today's order management process. REFERENCES Aguilar-Saven R. S Business process modelling: Review and framework. Int. J. Production Economics. pp Chuang P Incorporating disservice analysis to enhance perceived service quality. Industrial Management and Data Systems. 110(3): Business Process Reengineering Method. Journal of Physics: Conference Series. 495(1): Hambleton L Treasure chest of six sigma growth methods, tools and best practices: a desk reference book for innovation and growth. United States: John Wait. Hammer M. and Champy J Reengineering the Corporation: Manifesto for Business Revolution. HarperCollins Publishers, Inc.: New York. Jovan D., Redrag D. and Veis Š Functional and Informational Model of Expert Specialization Using Idef Standard. Romanian Technical Sciences Academy. Kamhawi E. M Critical Factors for Implementation Success of ERP Systems: An Empirical Investigation from bahrain. International Journal of Enterprise Information Systems. Muthu S., Whitman L. and Cheraghi S. H Business Process Reengineering: a Consolidated Methodology. Proceedings of the 4th Annual International Conference on Industrial Engineering Theory, Applications, and Practice, 1999 US Department of the Interior-Enterprise Architecture. Nikkei Markit Nikkei Indonesia Manufacturing PMI. Jakarta: Nikkei Markit. Özkarabacak B., Çevik E. and Gökşen Y A comparison analysis between ERP and EAI. Procedia Economics and Finance 9. Schniederjans D. and Yadav S Successful ERP implementation: an integrative model. Business Process Management Journal. Sunmer M Pearson New International Edition Enterprise Resource Planning First Edition. London: Pearson Education Limited. Waller M. A., Woolsey D. and Seaker R Reengineering Order Fulfilment. The International Journal of Logistics Management. Croxton K. L The Order Fulfillment Process. The International Journal of Logistics Management. Dachyar M. and Christy E Designing Process Improvement of Finished Good on Time Release and Performance Indicator Tool in Milk Industry Using 4923

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