1 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Tran Quoc Tien UNSTABLE RELIABILITY OF PRODUCTION LINE: A CASE IN TRI AN FACTORY, NESTLE VIET NAM MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2020 2 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Tran Quoc Tien UNSTABLE RELIABILITY OF PRODUCTION LINE: A CASE IN TRI AN FACTORY, NESTLE VIET NAM MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR. PHAN THI MINH THU Ho Chi Minh City – Year 2020 3 List of figure. 5 List of table: .2 Explore the problem mess .1 Limited domestic market volume .2 Lack of semi-product order from Nestle network .3 Possible problems identification .1 High competition from domestic competitors .2 Uncompetitive cost of production .1 High depreciation period of new plant .2 Uncompetitive variable cost .3 High fixed overhead cost.4 High price of raw material .3 Unstable reliability of production line .1 Definition of unstable reliability of production line .2 Importance of reliability of production line .1 High unplanned stoppage from process failure.2 High unplanned stoppage from breakdown of machine .1 Implement employee competency matrix management program .2 Enhance maintenance strategy by applying preventive maintenance .3 Building the high skill technician resource.3 Action plan for set of solution “implementation of competency matrix management” and “enhance maintenance strategy by enhancing preventive maintenance” .1 Action plan for implementation of competency matrix management.2 Action plan for enhance maintenance strategy by enhancing preventive maintenance. 57 5 List of figure Figure 1: Structure volume of Tri An factory Figure 2: Actual volume of Tri An factory in the period 2013 to 2019 versus plan Figure 3: Instant coffee market share in Viet Nam in 2019 Figure 4: Product volume structure between local product and export semi-product Figure 5: Export product volume compare to available capacity Figure 6: Initial causes – effect maps Figure 7: Soluble coffee local volume from 2013 to 2019 Figure 8: Cost of production in Tri An factory Figure 9: Asset intensity of Tri An factory from 2013 to 2019 Figure 10: Update causes-effect maps Figure 11: Process of pure soluble coffee line Figure 12: Unplanned stoppage at Tri An factory in 2019 Figure 13: Final causes-effect maps Figure 14: Solutions causes-effect maps Figure 15: Action plan for competency matrix management program Figure 16: Cost for competency matrix management program Figure 17: Action plan for enhancing preventive maintenance Figure 18: Cost for enhancing preventive maintenance List of table: Table 1: Production volume number of Tri An factory in the period 2013 to 2019 Table 2: Product volume number between local product and export semi-product Table 3: Local product and export semi-product ratio in Tri An factory from 2013 to 2019 Table 4: Detail cost of production in Tri An factory Table 5: Fixed overhead cost structure in Tri An factory 6 Chapter 1.1 Nescafe overview Nestlé is the world’s largest food and beverage company, based in the Switzerland, town of Vevey where it was founded more than 150 years ago.
Nestle are present in 189 countries around the world, and its 328,000 employees committed to the purpose of enhancing quality of life and contributing to a healthier future. Nestle want to help shape a better and healthier world, also want to inspire people to live healthier lives. Through more than 2000 brands ranging from global icons, like Nescafé or Maggi to local favourite one like Milo. Nestle are able to offer a wide portfolio of products and services for people and their pets throughout their lives.
Nestle ’s performance is driven by Nutrition, Health and Wellness strategy. Nestle is organized into 3 geographic zone and globally managed business: Zone Europe, Middle East and North Africa (EMENA); Zone Americas includes North and South America (AMS); Zone Asia, Oceania and sub-Saharan Africa (AOA) and Nestle Waters, reported separately for consistency with long- standing practice of the Group. The revenue mainly came from the sales of Zone AMS with 34% total sales and then Zone AOA (23%) and Zone EMENA (21%). Nestle Viet Nam is under managing of zone AOA that has been a company with great performance in nutrition, health and wellness industry.
Many years since it entered in Vietnam market, Nestle become successfully one of the largest companies in producing high-quality food and beverage. Nestle Vietnam is continuing to become a top-rated company in Vietnam. One of 7 the most important thing for Nestle to succeed as nowadays is effective and flexible business strategy to meet their expectations in the long run. Nestle Vietnam organization is divided to 5 key divisions: Sales & marketing division, Finance & Control division, Supply chain division, Human Resource division and Technical division that is led by chief executive officer.
Nestlé Vietnam currently operates 04 manufacturing plants: 2 factory produce Milo RTD (ready to drink) are located in Dong Nai and in Hung Yen province, Nescafe plant is in Amata zone, Dong Nai province and one another factory produce Maggi is located in Bien Hoa industrial zone, Dong Nai. All 4 factories are under managing of Technical Director. Nestle Vietnam employs about 2300 employees around Vietnam. All the factories of Nestle in Vietnam are designed and built to meet the highest standards of quality uniformly throughout the Nestle group, and always adhere to the laws of Vietnam on environmental protection, pollution prevention and adopt initiatives to reduce emissions into the environment, save water, aim to zero waste in the production environment.
8 Tri An factory was opening in July, 2013 with capacity 12,500 tons product of pure soluble coffee per year that is the biggest factory in term of producing soluble coffee in Viet Nam and 25th coffee factory of Nestle worldwide, 9th one in AOA zone (Asia, Ocean and Africa area). The factory was built with strategy to ensure demand for Viet Nam local market as well as low cost export semi-product to others Nestle factory over the world, especially in zone AOA. Specifically, current domestic volume is stable around 25% capacity of the factory while export semi-product volume occupies approximately 75% capacity of Tri An factory. Structure volume of Tri An factory 25% Local product volume Export semi-product volume 75% Figure 1: Structure volume of Tri An factory Source: Tri An factory, Nestle Viet Nam.
Additionally, Tri An plant was built together with the most advantage technology of Nestle group, total investment is up to 238 million dollars, creates more than 200 jobs for local people. Given shape shows the structure of organization of the factory that lead factory manager, there are five departments support to ensure smoothly operation of the factory.2 Symptom Tri An factory- production volume from 2013 to 2019 14000 12000 10000 8000 6000 4000 2000 0 2013 2014 2015 2016 2017 2018 2019 Actual Plan Figure 2: Actual volume of Tri An factory in the period 2013 to 2019 versus plan Source: Tri An factory, Nestle Viet Nam 10 In detail, production volume of Tri An factory [1] is showed by illustrated table: Production volume in Tri An factory 2013 2014 2015 2016 2017 2018 2019 Actual 2800 5528 5143 5579 9684 9004 9000 Plan 2800 5200 7000 9000 12000 12500 12500 Table 1: Production volume number of Tri An factory in the period 2013 to 2019 Source: Tri An factory, Nestle Viet Nam. The line graphs indicate the production volume from the year of start up factory 2013 to current year 2019. Overall, the actual production volume is increasing over the period.
However, it is under target number since 2015. Specifically, production volume target is to reach to the 12,000 tons’ soluble coffee in 2017 and achieve maximum capacity 12,500 tons’ coffee product since 2018 as master plan. Actually, production volume only reaching to 9,684 tons and 9,004 tons compare to the plan 12,000 tons and 12,500 tons in 2017 and 2018, respectively.2 Explore the problem mess With the symptom that production utilization of Tri An factory is under performance since 2015. To find out the main problem leads to the illustrated symptom, the given steps were carried out: - Refer primary data from Nestle company through reports as good as key performance indicators.
- Conduct depth interview with management team of Tri An factory: + Ms. Ta Van Anh (Vietnamese, Finance manager): Ms. Van Anh has been working at Nescafe plant since project green field in 2012. She started career path at Nestle with the position as finance executive.
After 5-year contribution to the organization, she was promoted to finance manager in 2017. As finance manager, she takes care the costing system of Tri An factory, lead and coordinate with related department like production, engineering…to ensure accuracy of cost planning as well as cost reporting. With the proven tracking, Ms. Van Anh has deep knowledge in term of costing of the factory as well as overview about Nescafe brand.
Hoang Quoc Truong (Vietnamese, Production manager): Mr. Truong has worked for Nestle 8 years since start up period in 2013 as production supervisor. With the proven excellent performance, Mr. Truong was promoted to Technologist that responsible for coffee processing technology, after that become production manager in 2018.
He has deep knowledge in coffee technology as well as witnessed variable change in the plant. As production manager, Mr. Truong responsible for overview operation activities of coffee processing from managing people: production operators, production supervisors to ensure quality, safety as good as production output of the plant. Vijit Jindupharit (Thailand, engineering manager): Mr.
Vijit has worked at Nestle for 17 years. He started the career path at Nestle as industrial service engineer in Thailand, at Nescafe plant there. He passed many positions in his 17 years at Nestle like: corporate safety and health manager, project manager, end to end project manager in Thailand before joining Nestle Viet Nam as engineering manager in 2018. As engineering manager, Mr.
Vijit take care 58 members in engineering team to ensure reliability of production plant as good as develop their 12 skill to meet requirement of business requirement. With the variable experience in Nestle organization, he will provide a valuable sharing related to indicated problem. Ian Johnson (English, factory manager): Mr. Ian has contributed to Nestle over 30 years, he passed variable position in Nestle from production manager in England, specialist team leader in Switzerland, then factory manager in South Africa.
He has become factory manager in Tri An factory since 2018. As a factory manager, Mr. Ian responsible for all internal activities of Tri An factory like: production operation, finance, human resource management…to external activities like local governance as well as market/zone management team to ensure demand of business strategy. - Refer literatures to prove cause-effect map as good as link between symptom versus possible problems.
Meanwhile, double check real situation in Nescafe plant to understand what happened. - Re-interview management team to validated the central problem. Base on the secondary data, in depth interview with management team as well as understanding as an employee in the indicated organization. There are two possible problems lead to under performance of production utilization: - Limited domestic market volume - Lack of semi-product orders from Nestle factory network.1 Limited domestic market volume The pie chart showed the market share portion in year 2019.
It is clear that top 3 biggest market share is Nescafe, Trung Nguyen-G7, and Vina cafe with 32%, 28% and 27%, respectively. The soluble coffee market is extremely competitive between Nescafe that is biggest soluble coffee brand in the world and Trung Nguyen – a King coffee in Viet Nam and Vina cafe – the oldest coffee giant in Viet Nam coffee market. 13 Instant coffee market share in Viet Nam in 2019 6% 7% 32% Nestcafe G7-Trung Nguyen Vinacaphe 27% Mc coffee Others 28% Figure 3: Instant coffee market share in Viet Nam in 2019 Source: Marketing department, Nestle Viet Nam Following is the given bar chart shows the ratio between local and export product volume of soluble coffee at Tri An factory in Viet Nam.