Production in Networks

Production in Networks H.-P. Wiendahl (1), S. Lutz Institute of Production Systems and Logistics (IFA) University of Hanover, Hanover, Germany Abstract New types of cooperation between companies in the manufacturing sector are coming into being. Since nowadays the creation of and involvement in supply chains is for most companies standard practice, new forms of cooperation are now emerging: production networks. The paper describes current developments in the field of production networks along with techniques and methods for their operation and management. Keywords: Manufacturing, Production network, Production planning and control 1 INTRODUCTION It is very well known that the success factors competitive companies have to achieve have changed tremendously over the recent years. There has been a change from a seller s to a consumer s market. Globalisation is no longer a buzzword but has become one of the crucial factors in competition. Enterprises are challenged by shorter delivery times, logistical accuracy including a maximum delivery reliability and increasing product variety, and all this accompanied by utmost market volatility. Thus, the ability to react to continuous and unexpected changes is essential for market success (Fig. 1). This change in the way enterprises act on markets will lead to a change in competition as well. Individual companies will no longer compete with each other. They will be members of competing supply chains or networks [15]. 2 EVOLUTION OF NETWORKS 2.1 Early Types of Cooperation Cooperations are nothing new to industry, but in the past, companies were operating in a business environment of relatively stable markets where reasonable forecasts were possible. In that context optimisation was primarily focused on internal processes and the improvement of manufacturing. But in recent years the economic pressure has considerably increased and forced companies to establish cooperative structures (Fig. 2). Fig. 1: Trends leading towards cooperations and networks Fig. 2: From the functional factory to the production cluster [94] Furthermore, the picture of a stand-alone company that is linked to its customers and suppliers only by delivery and procurement of products is no longer valid. Enterprises have therefore undertaken several innovative activities to optimise their processes. In order to cope with today s economic challenges, several concepts have been developed and put into practice, such as the virtual enterprise, supply-chain management, and production networks. Customers demand more complex products, enhanced services and the achievement of perfect logistic quality. Only few companies have been able to meet these requirements on their own. Thus, these external forces have led to a reduction of product lead times and to a pressure on companies to cooperate closely with their suppliers as well as with their customers. This was already predicted in 1984 by Miles and Snow, who said that dynamic networks as they called them would emerge at the turn of the millennium [57]. Hence,

companies have ceased to be single entities and have become elements of networks. 2.2 Supply Chain Management In the 1990s a fundamental change in the strategic approach to manufacturing took place in several steps. To cope with increasing complexity the first step for companies was to decide whether to make or buy. They concentrated on core competencies and outsourced processes and activities that were not regarded as essential to their business. In a second step a shift took place from the purchase of single parts only towards the procurement of entire components and modules. This resulted in a third step, namely the forming of supply chains, with companies cooperating with suppliers and customers over various tiers in order to improve business performance. In supply chains, as the term suggests, entire value-added processes or nets are regarded as a single entity and the interrelationships between the acting elements of a supply chain are considered for managing processes [43]. This includes the integrated execution of all activities along the logistics chain, such as forecasting, the allocation of jobs, manufacturing, distribution, and the procurement of raw materials. SCM is intended to cover all logistical activities and integrate the entire business line [85]. Nevertheless, supply chains are characterised by the sharing of information between suppliers and producers rather than between different suppliers themselves. Definitions and descriptions of supply chains and supply chain management are innumerable, but in general SCM can be referred to as the inter-organisational management of the flow of material and information along the entire value-added chain [63, 68]. In recent years a reference model for supply chain management developed by the Supply Chain Council has become common use in industry as well as in academia [76]. source, make, deliver, plan and return (Fig. 3). The SCOR model consists of four levels of different aggregations of these processes. The first level defines the competitive objectives of a company in terms of the core processes. The second level defines 30 general categories of core process that exist for supply chains. The particular categories that are relevant to a company depend on factors such as product, market, supply base, etc. The third level provides detailed planning instructions regarding the process categories of the previous level. This information includes process definitions, best practices and benchmarks. Level 4 of the SCOR model concerns implementation and is unique to each particular company [43, 63]. Other criteria are also suitable for the description of supply chains. These include, for example, the type of connecting network, the type of exchange, the type of order matching as a measure of market dynamics, and the frequency of negotiations [84]. 2.3 The Virtual Enterprise Virtual factories or Virtual Enterprises (VEs) are a new way of sharing tasks between manufacturers [20, 51]. Virtual enterprises are cooperations between different companies, where each partner provides a unique competence [20, 99]. VEs are set up quickly [9, 38]. One main characteristic of virtual enterprises or virtual organisations is the mutual use of inter-organisational information systems. Since it is the aim of VEs to have a stronger focus on customer demands [30] by concentrating on the core competencies of each enterprise involved in a VE [99], companies strive to produce to an individual customer s needs and to achieve a short-term distribution of goods by the time of demand. In order to achieve this, collaborating enterprises try to utilise the capacities and competencies of their partners. The customer perceives only one contractor, whilst the network behind remains invisible. Partners in a virtual enterprise are legally autonomous entities [71]. There are no restrictions to the number of enterprises involved since companies could be involved in several virtual enterprises [38]. Most authors agree that a predominant characteristic of virtual enterprises is that companies intend to cooperate only for a limited period [9, 38, 51, 52, 59, 62, 71, 85]. Typical examples of the sort of product manufactured in VEs are low-tech products with very short life-cycles such as clothing and toys. An example in the shoe industry is the Extended User Oriented Shoe Enterprise [6]. The VE approach is applicable to value-adding processes that are largely based on an informational infrastructure, such as media and software [57]. The VE approach is not applicable to the manufacture and marketing of luxury products, since different competition rules apply [38]. Fig. 3: The SCOR Model Version 5.0 [76] The SCOR model (Supply Chain Organisation Reference Model) in its latest version defines five core processes: 2.4 The Cluster Concept An extension of the virtual enterprise is the cluster concept [60]. A cluster comprises a heterarchical network of companies, their customers, and the suppliers of everything that is needed for running such a network. This may include materials and machinery as well as training and finance [15]. All participants are seen as stakeholders in the final market. The participants of a cluster are linked to each other by an common strategy. They may use the same infrastructure and have identical customers or skills bases. The main difference to other network concepts lies in the inclusion of non-business

stakeholders such as the government or research institutes [18]. A cluster has its focus on a particular market or sector. Companies may therefore be integrated in several clusters and clusters may occur within clusters [15]. Companies involved in clusters are not limited to manufacturing enterprises. There are known clusters involving all types of business. The cluster concept relates very much to regional aspects. Most companies that are members of a cluster are located in the same area. This is borne out by the fact that clusters tend to be based on a more informal structure. There may be a coordinating person, but the organisational infrastructure is very limited. Clusters are often seen as a forum for the networking of companies with similar interests in a particular market [15] even though they are competitors, thus leading to co-opetition. A prime consideration among clusters is the need for participants to provide each other with access to their IT systems [15]. There are some descriptions of clusters. Carrie [14] provides an example of a clothing manufacturing cluster. This cluster comprises farms producing the fabric, spinners, mills, dyers, cloth manufacturers, textile engineers, transportation and warehousing providers, stores, public bodies and research institutes. Among the most prominent ones are the Arizona-based clusters described by Carrie [14, 15]. In Europe, the cluster approach of the Italian sofa district [13] and of Scottish enterprises has been described [18], where enterprises from the electronics sector work in cooperation. One approach is to share logistical resources and to interconnect supply chains. accurately and to adjust their capacities more effectively since information is provided both earlier and in more detail. 3.2 Characteristics of production networks The intended duration of cooperation in a production network is significantly longer than in a virtual enterprise. Virtual enterprises are mostly set up for carrying out one project. After the project has been finished, partners may go their own ways again. In a production network, partners cooperate over a longer period since their integration is supposed to be more intensive, i.e. the partnership entails the joint development of the product. This requires a stable and long-term relationship as depicted in Fig. 4 [32, 70]. Due to this intensive integration, which also involves technological integration, it is more difficult and complicated for partners to withdraw. Many variations of collaboration are possible regardless of the particular specification of a cooperation. Companies will choose the specific partner and type of partnership according to their individual needs. 3 PRODUCTION NETWORKS 3.1 Definition A further development in the continuing cooperative trend amongst manufacturing companies is the formation of production networks or supply nets [93]. Although the term production network was initially used to describe the linkage of single work systems [77], production network nowadays refers to cross-company cooperations. These networks go beyond customersupplier relationships like logistic chains to the building up of stable network arrangements and to variable production networks. The latter are company alliances capable of dynamically reconfiguring themselves [21]. The main idea behind production networks is the mutual use of resources and the joint planning of the valueadded process [26]. These networks are characterised by intensive communication between the participating companies even though they might represent the same level of value adding. This means that the company in a production network exchanges detailed data with its suppliers and customers. Furthermore, however, the particular suppliers of a company should communicate with each other as well [48]. This means that a manufacturer cooperates with other suppliers of his customer, i.e. his own competitors. This is sometimes referred to as co-opetition. It leads to an intensive flow of information between all participants in a production network [49]. The information shared in a production network according to the individual needs of the participating companies may comprise the actual and future load of machines, the availability of resources amongst the net partners, order volumes or future and planned demands, and the order progress along the value added chain in the network. This information, that has been exchanged rarely in the past [33], should be exchanged as early as possible in order to help the net partners to plan more Fig. 4: Classification of cooperation concepts Another characteristic distinguishing production networks from Virtual Enterprises is the availability of competence amongst partners. Whereas in a VE each partner has its particular core competence that is in most cases not shared by others [20], in a production network redundancies are set up deliberately in order to provide opportunities for sharing resources. Partly in accordance with Hieber [32] and Schönsleben [69] different concepts of cooperation can be classified according to the duration of collaboration and to the relationship of power within the collaboration (Fig. 4.) Compared to other concepts of cooperation, production networks have the highest degree of versatility. A production network can be heterarchic as well as focused on one focal company. In order to develop the infrastructure needed for operating a production network, the intended duration of collaboration is considerably longer than for other types of cooperation such as virtual enterprises or clusters. 3.3 Choice of partners The selection of suitable members has to be conducted very carefully so that all the partners benefit from their participation in cooperations and because each partner has an influence on decisions within the network. Most important for the choice of partners is the analysis of their core competencies and their coherence with the network s strategy and needs. The competencies of possible partners should be evaluated according to their uniqueness and availability on the market, the ability to apply this competency for the creation of a variety of

products and services (versatility), and the share of this competency in the fulfilment of customers requirements (value benefit) [23]. Depending on the classification of the competencies the potential partner is considered as supplier, potential partner, or integrated member (Fig. 5). utilisation of capacities and the placement of particular orders within the network [38, 58, 99]. The boundaries between the different functions are fluid and more than one task may be executed by the same organisation. uniqueness Cooperate integrated member network design high medium low supplier Buy potential partner low medium versatility high classification low medium value benefit high degree of integration Fig. 5: Evaluation of competencies for the choice of partners [23] Integrate Other criteria for the selection of partners are their orientation towards customer satisfaction, their ability to communicate internally as well as externally, their robustness in terms of future developments, their flexibility and variability for adapting to changing environments, their stability, and their reliability [23, 34]. A further criterion for the choice of partners is the amount of effort needed to coordinate and integrate them [70]. The use of simulation could be of huge benefit in choosing partners. The simulation of manufacturing systems, for example, could endorse the underlying criteria for offers made by a participant to the network. Simulation in respect of distributed manufacturing facilities allows the effects of participating in a network to be estimated and solutions within the network to be found [28]. 4 MODES OF NETWORKING Networks and close cooperation offer new potentials for improving value-adding processes. Innovative organisational concepts will cause new functions and new roles to emerge. In this context the employment of modern communication technologies will become a major factor of success. 4.1 New functions in networks New forms of cooperation such as occurring in networks call for new tasks and functions that have not previously existed to such an extent. New functions that are often mentioned include network design, broking, coordination, subcontracting, and communication (Fig. 6) [93]. The function of a network architect who is sometimes referred to as broker [99] initiating the building up of a network cooperation will be of predominant importance. The architect will define structures and processes within the network. Once a network exists, a coordinator is needed to perform the function of central control and planning [54]. At present this task is often conducted by employees of companies participating in a network. But in the future, this service could be provided by independent external staff as well. Since enterprises are searching in the market for suitable cooperations that match their needs and will provide added value, an independent operator is needed to act as a broker between networks and interested companies. Furthermore, a broker or agent can manage the broking subcontracting coordination communication Fig. 6: New functions and tasks in networks [93] In addition, market places will be established where partners can trade their resources. If additional resources or particular technologies are needed they can be acquired from this market place [61]. These market places can be public or limited only to member companies. 4.2 Information Exchange Production networks are supposed to increase the partners flexibility. This will be achieved by the integrated planning and scheduling of orders throughout the network with regard to the loading and availability of resources at the various partners. Detailed information therefore needs to be exchanged between partners. This information comprises product data as well as production data. For example, the producer can monitor the actual and expected capacity of particular work systems belonging to the supplier whom the producer may subcontract, or he can trace the progress of actual orders, enabling him to adjust his own planning in the event of delays. If the supplier receives early demand forecasts, then he can take account of expected future orders in his planning and may reserve capacity especially for the producer. For the coordination of all resources and orders, a high degree of transparency needs to be facilitated. This requires that detailed information be made available to other net partners. Traditionally, information between companies has been shared only to a very limited degree. If companies intend to participate in networks, they need to change their attitude towards information management. They have to give other companies access to data that was hitherto handled only internally. This openness is compensated by the advantage that companies will also receive information from other net partners, which will be used for planning. The advantages of data exchange in respect of improved reliability in scheduling and planning should encourage companies to allow other companies even competitors to get a limited insight into internal data. Hence, the flow of information has to take place in both directions: from the producer to the supplier as well as from the supplier to the producer. Figure 7 gives examples of information that should be shared. The communication needed requires an unimpeded flow of information amongst the net partners. This means that the participants in a production network are connected to each other by means of data interfaces. The technical realization of data exchange can be done in different ways, online or offline. Online monitoring means that data from the partners is continuously put into a database to which other partners have instant access. For example, the producer has an

SAP database containing information for production planning and control (PPC). By means of user-exits, relevant data for other net partners can be extracted and saved into a data-buffer. The supplier accordingly feeds its data into the same data-buffer. Both partners have access to this information and can retrieve whatever data they need for their tasks. This data will be prepared and aggregated by a network-monitoring module so that each partner retains control over its own data and partners get no more than the necessary information. producer production inventory orders actual and future demands capacities due dates goods instock network control supplier inventory production machinery by means of digital models [61, 100]. Special consideration needs to be given to the flexible identification of changes and the merging of different document versions if a document is edited independently and simultaneously by two or more users [2]. When designing a new product, suppliers should be involved as early as possible as well. To achieve the best results, these suppliers should develop their part of the product themselves, a factor which has to be considered in the process organisation [70]. In order to enable lifelong communication between a product s designer, manufacturer and the consumer, biological manufacturing systems are under discussion. These systems, which are based on the principles of selfgrowth, self-organisation, adaptation, and evolution, are able to deal with unforeseeable changes in manufacturing environments. Through this process a suitable product can be engineered despite an incomplete specification and an unknown environment [82]. materialflow order progress information technology order progress capacity availability due dates goods in stock linkage of geographically dispersed organisational elements productengineering acceleration of process execution Fig. 7: Data exchange in production networks If online monitoring with continuous access to the database is not suitable or necessary, companies can communicate by directly exchanging data via e-mail as data-files. Information is prepared internally and data is sent directly to the recipient. This procedure guarantees that sensitive data are kept secret and the provider of data keeps control over its own information. 4.3 Product Development Networks offer many opportunities for improving and accelerating processes. In particular, the processes of product development and virtual engineering will benefit outstandingly from networking linkages between partners since customer satisfaction is often greater with cross company production [20, 50]. Due to the complexity of products, companies have to use external engineering resources because they are not able to achieve required lead times when relying only on internal resources. Thus the distributed joint development of products is expected to reduce lead times in product development considerably [12]. Distributed product development, e.g. through the Internet, can bring about a collaborative process among designers, manufacturers, suppliers, and even customers, whereby restrictions due to diverse geographical locations or time-zones are eliminated [17]. For example, functional specification sheets are accessible to all developers via the Internet or via a software tool within the network [81]. Such a platform also enables product data management along the entire lifecycle [65]. This would allow permanent access to all relevant data needed for modifications or product service. Current advances in simulation technology allow a consistent and comprehensive simulation of products and their respective manufacturing processes. The advantage of a network structure is the ability to plan and model in parallel [2]. This is called virtual production or virtual manufacturing, namely the consistent planning, validation and control of manufacturing processes and organisation structure process oriented organisation for avoiding of interfaces process design Fig. 8: Aspects of configuration for CPE [73] A further step towards integration is represented by the concept of cooperative product engineering (CPE). Cooperation in this context means the internal and external collaboration of all areas concerned with the product. It aims to anticipate, collect, process, and create information from all areas of activity throughout the whole product life-cycle. Information exchange should foster mutual support between all those involved [80]. The accomplishment of all engineering processes needs an agreed strategic basis. CPE therefore also comprises the development of strategic areas of business and processes. As Fig. 8 shows, CPE is accompanied by changes in the organisational and process structure. A very important factor is the linkage of distributed organisational units through information technology [73]. 5 MANAGEMENT METHODS FOR PRODUCTION NETWORKS 5.1 PPC in Production Networks The evolution of production networks puts new demands on production planning and control (PPC). In production networks, the process of manufacture and assembly is highly dependent on prior and subsequent processes. Planning is integrated into the network, whereby detailed planning is done internally by individual network partners and the general planning is performed at network level [41]. PPC thus has to deal with this problem. One approach to support planning in decentralised structures is the suspension of the traditional separation of planning and execution [75]. Planning can be undertaken only on the basis of product modules and not on the basis of single items. This planning is more imprecise, but sufficient for networks. This allows a

higher level of autonomy for separate units and a more suitable planning process. With respect to Supply Chain Management, planning solutions based on component ware come into operation. These are modules that can be combined according to requirements and may be created from standard software. This makes them easily and quickly applicable within a network of different partners. The effort of setting up is reduced to a minimum. Since the application of component ware is not very cost intensive, this would be a suitable solution in particular for small and medium enterprises that cannot afford large and expensive SCM software [27]. The intensified cooperation between manufacturing companies will lead to modified tasks for production planning and control (Figure 9). With regard to the core tasks of PPC, the importance of pure planning for internal production will decrease whereas the importance of external supply planning will increase considerably since it will support the network operation. Production program planning in production networks need to be enlarged to encompass the synchronisation between partners regarding sales, requirements, inventory and resource planning. Manufacturing requirements planning has to develop and consider modified modes of planning for procurement, backward scheduling and capacity requirements. Thus, the collective functions of order coordination, inventory management and PPC controlling will become more important for planning in networks than in conventional PPC environments. In the future it will not only be a matter of monitoring the resources; it will also be necessary to identify clearly which process chains and order networks are relevant for operating in the network. Order coordination is particularly important since orders now need to be planned through the entire network taking into account the complex interrelationships between processes. transportation processes will become integral parts of PPC in networks. Its relative importance depends on the division of responsibilities between the network members and the suppliers of logistic services. New requirements on PPC in networks will therefore lead to the following criteria for the employment of PPC in networks: a high degree of adaptability to flexible conditions, a concise provision of comprehensive information, the capability to be integrated into networks and a good ability to conduct planning. Naturally, all partners must be oriented through their PPC Systems to share information with other partners in the network [19]. PPC systems in networks have to allow decentralisation and temporary configuration. Due to partly small and highly variable order volumes within the production network, traditional planning algorithms such as Kanban or MRP II are not adequate. Kaluza [41] therefore proposes the application of load-oriented control methods (e.g. load-oriented order release [91]). Network orders are split into sub-orders which are individually scheduled at the required resources and released accordingly to the network partners. Another approach is the development of decentralised control systems. This approach establishes decentralised control loops between different manufacturing work centres [46]. A work centre will start processing a job only if a request at the following work centre that is supposed to perform the next operation is able to process that job afterwards. If not, the order is postponed because it will only increase the queue in front of the following work system. Simulations have shown that this control mechanism will lead to stable throughput times and low WIP levels [47]. The advantage of this method is the decentralisation that allows the planning of work systems or manufacturing processes that are geographically distributed as production networks are. 5.2 Subcontracting in networks When a shortage of capacity occurs, companies usually try to exhaust internal potentials, by running extra shifts, for example. However, the scope for such measures is limited, so other methods of load adjustment need to be considered. The aim of a production network is to utilise external resources within the network by subcontracting entire orders or portions of them to cooperating companies. This increases the flexibility of manufacturers to react promptly to market demands. The most usual types of subcontracting are described in the following. classic subcontracting supplier producer 1 manufacture manufacture of semi-finished of raw and finished products material/parts/ modules classic subcontracting customer manufacture of finished products technology-driven subcontracting producer 2 producer 3 capacity-driven subcontracting process Fig. 10: Types of subcontracting in production networks Fig. 9: PPC functions in production networks New functions in addition to existing ones will arise in PPC. Network monitoring and the planning of There are primarily three different categories of subcontracting between supplier and producer (Figure 10). The interfaces between the supplier and the producer or those of the producer and the customer will be referred to as classic subcontracting. The predominant contact between both partners is the

delivery of goods after a finished production process. Technology-driven subcontracting refers to cases where a company does not itself conduct certain steps of the production. This might be due to various reasons, such as a particular piece of technology not being available. Certain steps of the production then need to be performed externally. This kind of subcontracting is normally planned long-term. One of the most important reasons for subcontracting are capacity problems of the producer. In this case of capacity-driven subcontracting, the producer assigns parts of his production to external manufacturers when a lack of capacity occurs. The planning of capacity-driven subcontracting is done in the short-term and requires a certain amount of flexibility and close cooperation with possible suppliers. Other types of subcontracting may occur as well, such as the allocation of jobs between partially redundant factories of the same company, or when subcontracting is done for strategic reasons in order to maintain a relationship with a supplier [97]. In terms of IT support, these types of subcontracting require tools with monitoring functions as well as planning and executing functions. The monitoring function in a production network has to monitor orders along the entire production network as well as information regarding the situation or status of single resources (e.g. work systems) in the network. The planning and execution functions need to comprise tools for the combined management of inventories and the adjustment of lot-sizes [86] between the net partners. An important function is the facilitation of capacity and resource management across the network. Some companies are already cooperating in networks with redundant capacities and a very intensive exchange of information even including data about actual loading and utilisation of machinery [48, 95] In the following, an example of an industrial application of the subcontracting function supported by a software tool is described. Fig. 11 depicts the application of capacity-driven subcontracting by two companies linked by a network software tool that allows the exchange of data about production and capacity utilisation. Fig. 11: Practical application of a network control The producer manufactures machines and produces most of the components itself. When a bottleneck occurs, the producer regularly subcontracts particular processes, e.g. drilling or milling, to an external manufacturer, the supplier. The PPC systems of both companies are connected with the network tool, hence actual subcontracting data is processed. The companies have agreed to exchange data daily. In a first step, the producer uses the network tool to identify bottlenecks in his own production. The software tool identifies orders suitable for subcontracting and enables the effects of their removal to be investigated immediately. The information about those orders finally chosen for subcontracting is transferred to the PPC system of the producer, in this case SAP R/3. The PPC system initiates a new scheduling run of the remaining orders and returns the resulting data to the network tool. Furthermore, the PPC system generates orders, which are transferred to the supplier. These orders are put into a separate database at the supplier that is linked to his PPC system. The database, which represents the subcontracting account of the producer, can be visualised. The subcontracting data from the supplier contains all relevant information for the planning and scheduling of the orders at the supplier. The subcontracted orders are scheduled in the supplier s PPC system. The supplier s entire production is monitored by the networking tool, hence the load of all work systems can be evaluated. From this data, information about the producer s orders and agreed work systems will be provided to the producer by the supplier by means of a database. The producer is thus able to monitor those of the supplier s work systems to which work is subcontracted. Additionally, the supplier is provided with a database of those of the producer s work systems from which single orders are subcontracted. This allows the supplier to monitor the producer s actual load situation and to forecast the amount of work that may be subcontracted in the future. On the basis of this information, the supplier may suggest orders for subcontracting or may adjust his own capacities to expected orders. On the other hand the producer can now evaluate the supplier by monitoring the supplier s work systems and can allocate orders according to the supplier s current capability. This increases the supplier s accuracy of planning and helps both partners to meet delivery times. The two netpartners agreed that the producer would provide the supplier with data about current orders and forecasts of demand for the next six months. Furthermore, the supplier receives data describing the current load situation at specific work systems. On the other hand, the supplier allows the producer to monitor his capacities and provides data regarding the progress of the orders received from the producer. 5.3 Application of control theory Since subcontracting is an important characteristic of production in networks, Breithaupt proposes the application of control theory for controlling production networks [11] or supply chains [10] with regard to subcontracting. The subcontracting function could be modelled by means of a dead-time element in combination with a continuous model of production systems [11]. Fig. 12 gives an example of a dead-time-based controller for a work system. The dead time equals the replenishment time of the single elements within the network. An input-rate limiter initiates the subcontracting. If the input exceeds a certain amount, then the subcontracting of excess jobs is activated and those jobs are redirected to an external work system. This external capacity can be built into a control model as a dead-time element [10, 11, 92].

Fig. 12: Dead-time-based continuous model of a worksystem [11] 5.4 Application of Agents An often-discussed topic is the applicability of agents in supply chains or networks [5, 39, 59, 66, 83, 87, 88, 99] or in the virtual enterprise [30]. The use of agents is possible in different stages of a network operation. Agents can be employed for partner selection and network design [35] as well as for the operation of a network or a supply chain, each agent performing one or more functions and each coordinating action with other agents [22, 85]. For example, agents representing different partners in a network can bid at a network marketplace for orders and capacities possibly in the form of auctions [25, 40]. This may replace existing centralised database and control systems by a network of agents connected to local databases and advanced communication capabilities [39]. The employment of agents is also possible for the modelling of virtual enterprises and networks [22]. Networks can be modelled as a set of individual, autonomous cooperative agents maintaining a set of shared objectives [59]. Because agents are hardware- or software-based computer systems that do autonomously react to environmental changes, they enable the modelling of a flexible organisation in a dynamic environment. The behaviour of the complete network emerges as a result of the behaviour of the individual agents [59]. Fig. 13: Communication concept of agent based order management [88] An example of the application of agents is the splitting of a large order into several sub-orders. Agents use the Internet to check the availability of capacities amongst network partners and then create an optimised solution for the fulfilment of the particular order [89]. Typically, agents are employed for the scheduling of orders where machine capacity is represented by a machine agent that communicates either with a management agent that interacts with the customers [83] or with an order agent that represents orders [39]. Another example of the employment of agents is given by Vollmer [88], where order agents representing the specifications of the order (work content, times) interact with resource agents representing the constraints of resources needed for conducting a job (availability of capacity, cost). Figure 13 illustrates the communication concept underlying this application. The order agent incorporates all the details and requirements of an order. With these specifications the order agent approaches the resource agent and asks whether the particular job can be processed at that resource. The resource agent will respond to the request by making an offer (bid) taking account of other jobs that have to be processed. The resource agent makes the offer on the basis of the relationship between cost and delivery date. Normally, the earlier an order is to be processed, the higher the price. The order agent compares the offer from the resource agent with offers from other resources for the same job. The decision over whether that particular resource has been chosen or not is then communicated to the resource agent. The communication underlying this concept will be done via the Internet and allows the involvement of geographically distributed resources such as occurs in production networks. 6 THE ROLE OF MODERN MEANS OF COMMUNICATION FOR NETWORKS The use of modern means of communication such as email, voice mail, Internet, or computer conferencing is crucial for the success of distributed organisations such as production networks, virtual enterprises or virtual teams [1, 4, 12, 30, 89]. Due to its rapidity and simple global accessibility, the Internet will be the predominant medium for exchanging data and information in a network. The Internet technology enables all participants in production networks to communicate real-time data and to access information bases such as e-commerce portals [36]. Furthermore, the Internet is globally available. Hence, information can be retrieved wherever and whenever it is requested [17]. For example, the Internet can be employed for the design process by making product information available on a server which can be accessed by network members involved in the development process. External computer systems can be plugged into that database and can perform several actions. These may range from the simple downloading of product specifications to the permitted modification of certain products and the adding of solutions or modifications to the database [17]. Further applications are the use of Internet portals for managing the subcontracting process [16]. A well-developed communication infrastructure reduces the necessity for expensive and time-consuming face-toface meetings [1]. Another advantage is the reduction of wasted time caused by inaccurate information, which can result from the inability to communicate and exchange feedback frequently. An way to overcome these problems is the provision of knowledge by means of a platform that is accessible via

Internet or intranet. On such a platform information relevant for the cooperation can be easily provided to the network partners [24, 64]. The central web server contains the relevant information about processes within the network. The net partners may log into the server whenever they want (Fig. 14) and can retrieve information. The existence of mobile communication means that access to information is no longer restricted to fixed locations. A persistent problem is the security of data exchange amongst net partners [37, 55, 56, 89]. In particular the interfaces of a network with the external world and openly accessible data networks are vulnerable. The low standards of data protection causes security worries about data-flow through the Internet. A certain level of security, perhaps differentiated according to the confidentiality of information, needs to be guaranteed. The planning, setting up and operation of highly flexible and distributed networks will require an increasing degree of direct participation by employees. The intensity of participation will depend on the development of the network and the type of employee. The term participation refers to the direct involvement of employees in processes and business decisions that were previously carried out by management only. This will lead to changes in technique, working organisation and performance requirements at the intersection of working process and management. Knowledge management will be of crucial importance. The enhanced participation of workers will result in the better motivation of employees and a better use of their informal knowledge, and will help to avoid the lack of information that might otherwise occur due to complexity and dispersion of networks [8, 29]. The intensity of participation will depend on the phase of the network cooperation. In the planning phase, employee participation will avoid purely theoretical results. The same will apply to their early involvement in the process of product development or the selection of suppliers. The early involvement of employees is particularly useful when creating the interfaces of the network as strategic coupling points of interaction. Employees will have the most profound impact, however, in the operational phase. The more decentralised a company s organisation, the greater the potential and benefit of participation. The role of the employee will change from being purely focused on function towards the shaping of the working environment. As shown in Fig. 15, employees on the shop-floor level have to take on new functions and tasks in networks, requiring not only professional excellence but also soft skills. Fig. 14: Communication in production networks past present future Furthermore, the speed of data exchange needs to be considered. To plan effectively, companies must be able to share and exchange information in real time. This increased data-flow may induce high network traffic and data overload, both leading to delays [37]. 7 HUMAN PERSPECTIVE IN PRODUCTION NETWORKS As well as the various improvements in processes and technical requirements that have to be made when setting up close cooperation in networks, it is necessary to consider the human aspects. Because the way work is carried out will change in distributed organisations where direct face-to-face contact becomes difficult, networks will have a considerable effect on people. Generally, working in boundary-crossing environments and teams will require a higher level of personal autonomy than when people only work in the environment of a single enterprise where it is possible to rely fully on existing support structures [1, 3]. This is less easy in networks, since external partners have to be integrated. Since working in networks is expected to change the organisational environment of jobs, the desires of employees in networks and the new demands placed on them have to be taken seriously. New skills such as multi-disciplinary organisation and technical ability are required. This means that employees need to be competent in process, information and communication technology, business organisation and management as well as interpersonal skills [7]. responsibility functional orientation machine operator foreman master craftsman programmer responsibility performance orientation team member team speaker process manager segment manager? configuration of the specific environment order manager innovator configurator moderator degree of decentralization Figure 15: Evolution of staff member responsibilities These changes need to be accompanied by training as well. Subcontracting in networks, for example, will be carried out rather by workers who can evaluate the current capacity situation than by a central procurement department. These workers therefore need to be trained accordingly to perform this new task responsibly. For working in production networks, new ways of teaching need to be explored. One way of learning in complex and distributed environments is through games based on simulation. This has the advantage that different participants can be trained simultaneously at different locations and can interact with each other. Tutorial support can be given through the Internet [67]. To summarise, the earlier mentioned demands for new skills, from subcontracting to the setting up of a new working environment, require a systematic control both of existing skills and of those needed for the future. Kjellberg classifies competence management into four processes [42]. Competence planning focuses on current and future needs, different existing and planned

levels, and strategic and core business competencies. Competence supervision comprises systematic analyses, procedures, routines and activities in all relevant processes for the business vision and goalsetting. Competence development involves gap analyses and development plans. Competence sourcing is concerned with strategies for the hiring or phasing out of skilled people needed in the network. The competence planning and supervision are the only strategic parts. Development and sourcing, however, are part of the daily operational work. These processes are elements of the entire competence management process as depicted in Figure 16. Fig. 16: The competence management process [42] The first action to undertake is to set the two strategic areas of competence planning and supervision within the total framework of the Competence Management Process. Figure 16 describes how the competence management process can be used to identify competence gaps by comparing existing skills with future requirements resulting from strategic considerations. 8 CONSTRAINTS AND CULTURAL PREREQUISITES FOR OPERATING IN NETWORKS There are a number of factors that determine the success or failure of a cooperation considerably (Fig. 17). Fig. 17: Agreements, rules and prerequisites for operating in networks Many of these factors lie in the area of behaviour within the cooperation and the response to other partners needs [37]. Although technical solutions for operating in networks do exist, cooperations are characterised by many intangible issues that differ tremendously from internal management. Above all, a consistent strategy needs to be developed and agreed upon by all net partners. One problem that may occur is that partners do not declare their true interests and aims openly to the other participants [72]. Since relationships in networks are characterised by complexity, long termism, and cooperation rather than competition, one of the foremost prerequisites for successful operation in a production network is the confidence and trust between the partners involved [1, 31, 56, 78]. This trust need to be evolved over time [19, 78, 79]. But in particular during the set-up phase of a network, when possible partners assess each other and exchange sensitive data, rules for the handling of information are necessary to foster confidence [31]. The information shared by the participants, such as the current capacity utilisation of particular work systems, has so far only been handled internally in most companies. In networks, this data is now made available to external net partners. This calls for a new degree of confidence. Hence the net partners have to agree in advance which data should be exchanged and how it should be handled. Agreements have to be reached which guarantee that no confidential information is passed on to competitors. Alternatively, the data that has to be exchanged can be filtered according to the precise need for information and the degree of a partner s integration in the net. In such a case, only preagreed data is exchanged and the company has complete control over its own data. A solution for the problem of trust is the installation of a climate of management that fosters creativity, innovation and responsibility for actions taken. For inter-company communication, a board can be set up consisting of members from all partners [31]. An important factor for success in production networks is the integration of different company cultures [1, 37] and the collaboration of people of different background [30]. According to different organisational cultures, enterprises often hold different values. A network comprising different partners and manufacturing sites with different degrees of independence and autonomy has to integrate these sometimes partly conflicting cultures. A balance also has to be found between partners of different size and thus disparate power within the network. Legal aspects have to be considered, too. This concerns mainly the reliability of information and the definition of responsibility for the provision and accuracy of the exchanged data. Anti-trust law may apply too, since the forming of close cooperations may affect the accessibility of certain markets [44]. Cooperating in networks requires a continual standardisation of machinery and production techniques, too [45]. The same applies to the consistent integration of data. Since different companies from different businesses cooperate with each other, it is quite likely that they employ different software systems. These systems have to share data, so it is important that standardised formats are used. Care must be taken that data of the same sort has the same meaning to avoid ambiguities when itis processed externally. 9 CONCLUSIONS AND FUTURE AREAS OF RESEARCH This paper has shown that considerable research in the area of cooperation has been conducted worldwide, although a commonly accepted formal definition of production networks or production in networks does not exist yet. Network structures will affect all levels of an enterprise from the activity level to the business level.