Progressive Distributor - Controlling consumption

Controlling consumption

Using lean manufacturing principles and automated dispensing systems, Machine Tools Supply helps customers control costs.

by Rich Vurva

Like an insidious disease, waste and inefficiency in manufacturing facilities rob companies of productivity and profitability. Although most companies strive to eliminate inefficiency, waste isn’t always easy to spot and sometimes has innocent origins.

For example, suppose Joe needs to replace a cutting tool insert on the CNC machine he operates. He walks to the tool crib and tells the attendant which insert he requires. Since the inserts come packaged in sets of 10, the attendant hands Joe a box of inserts. Joe puts one insert into the machining center and sets aside the remaining nine.

Meanwhile, Bill notices it’s time to replace the insert on his CNC machine on the other side of the shop. He walks to the tool crib and picks up a box of inserts, installs one on his machine and puts nine on his workbench.

At the end of the day, when the tool crib attendant normally completes his inventory check, he remembers issuing two boxes of inserts, so he phones his tooling supplier to place an order for 20 replacement inserts.

“Because of the requirement for two inserts, they’ve actually purchased 40. It’s a huge inefficiency,” says George Ponce, president of Machine Tools Supply (MTS) in Costa Mesa, Calif.

Ponce uses the illustration above to describe the lack of inventory visibility that exists in many manufacturing facilities throughout North America. He says the problem exists because companies do not have processes in place to track indirect expenses more closely.

“Typically, in our industry, supply chain management begins at the purchasing agent’s desk when he places the order and ends at the receiving dock when they receive the merchandise. What happens in the middle is an unknown,” he says.

MTS helps manufacturers control their tooling costs by installing automated point-of-use dispensing machines on the plant floor. The system works on multiple levels. Putting frequently consumed items closer to work centers eliminates the need for plant employees to travel to and from far-flung tool cribs to stock up on supplies. Since the dispensing machines are powered by inventory management software, manufacturers have access to better tool consumption data. Plus, employees who know their tool usage is being monitored tend to check out items less frequently.

That’s what Greg Nollau noticed happening at Smiths Aerospace, a manufacturer of aircraft landing gear components, after MTS installed dispensing units throughout its facility in Santa Ana, Calif.

“Even though our production is up considerably, our tool consumption is down because we’re managing inventory better,” he says. “Operators aren’t going to the tool crib to pick up a package of 10 inserts when the machine only requires two. Plus, because employees know they’re being monitored, they’re not replacing tools at the earliest sign of wear.”

Ponce says companies that hire MTS to manage their tooling and other supplies typically see an immediate 20 percent reduction in consumption. One customer saw glove consumption go from $300,000 to $80,000 by instituting a point-of-use dispensing system. Workers who previously withdrew gloves once or twice a shift were limited to two pairs per week without a supervisor’s authorization.

“We try to follow lean manufacturing principles. In a lean system, as one item drops out during a project, something drops in to replace it. That’s a philosophy we try to espouse with our customers. It minimizes their inventory and also assures that they don’t run out. We’re constantly monitoring consumption,” says Ponce.

About 75 percent of the company’s $25 million in sales comes from inventory management programs. MTS serves customers in the aerospace and automotive industries, government contractors, plus medical, recreational and fluid power industries.

The company uses a variety of dispensing systems, including automated lockers and cabinets, standalone robotic tool cribs and handheld scanners that utilize the AutoCrib Automated Inventory Control System. AutoCrib is a sister company launched in 1994 by company co-founder Steve Pixley.

Amnesty day
One of the first things MTS does when it introduces its inventory management system to a new customer is hold an amnesty day.

“We’ll ask employees to bring all the tools they have in their work area and return them to the crib so we can put them back into the system. We’ve had situations where companies had four to six weeks of supplies come back to the crib,” Ponce says.

In the early weeks and months of a new installation, MTS replenishes stock using inventory the customer already owns instead of buying new product. Sometimes, the excess inventory is valued at hundreds of thousands of dollars. Add to that the cost of the dispensing machines installed on the plant floor, and it’s easy to see that Machine Tools Supply’s startup costs can be quite high.

“We just put in one deal that may be worth $25 million to $30 million in volume over five years, and our startup costs are in excess of $1 million. We literally don’t expect to make much money there in the first year,” Ponce says.

That’s one reason MTS prefers to sign supply agreements lasting three to five years. The company also gathers as much information as possible about the customer’s expectations and service requirements before beginning a new implementation.

Experience shows that if plant management isn’t committed at the highest level down, the effort is doomed to fail. When MTS uncovers inefficiencies in consumption, management must act on that data and make corrections or the facility won’t realize savings and reduce consumption.

“We do not take a cookie cutter approach with customers,” says Ponce. “We spend a lot of time up front understanding the temperament and attitude of the customer at various levels to better understand what they want to accomplish. Then we work with AutoCrib to customize a solution.”

The reporting capabilities of AutoCrib Software creates efficiencies and prevents stockouts, and also provides the customer with information to drive costs out of their manufacturing process. Monitoring consumption by employee, by machine and by operation or job allows the customer to determine areas where further training may be needed or where usage exceeds established standards.

Repackaging department
Ponce believes a properly designed procurement process should do more than create savings by transferring costs from customer to supplier. The automated inventory replenishment system also lowers his company’s costs, making MTS more efficient.

When orders come in, the Prophet 21 ERP system automatically notifies the company’s full-time repackaging department if repackaging is required. Employees repackage products in the appropriate amount and attach bar-coded labels to items before delivery to customers. The labels identify the type and quantity of product, the intended customer, and sometimes even designate a specific drawer or bin in the automated dispensing machine where the tools are held in inventory on the plant floor. Minimizing manual labor and data entry steps reduces opportunity for error.

“We’re not taking calls on an order desk. It all comes over the computer and links directly to our ERP system. We’re not doing any hand processing of replenishment. It’s literally going from consumption at the plant level to request for repackaging and shipment to the customer,” he says.

Every morning at 5 a.m., MTS employees review consumption reports from dispensing machines located in various customer locations throughout the U.S. and Mexico. If they spot usage spikes, they’ll contact the customer to determine if it’s an anomaly or the beginning of a trend. A spike in consumption might indicate a machine problem or the need to train a new employee. If a plant added a production shift and forgot to notify MTS, it might require an adjustment in tooling requirements.

The company typically strives to maintain fill rates of 99 percent. Analyzing inventory according to average days-of-use on hand instead of simply tracking min./max. levels helps flatten consumption spikes. The goal is to manage consumption over time to avoid stockouts or excess inventory.

“Sometimes very minor changes in a process or in a customer requirement can have a huge impact in inventory,” Ponce says. “It’s crucial for us to closely monitor consumption.”

Monitoring consumption also reveals when usage drops below normal. A drop in consumption might occur when a production change results in a new tooling requirement. If the change goes unnoticed, existing tooling maintained in inventory may become obsolete. When an MTS customer decides to change an item, MTS manages that item’s consumption until the inventory is exhausted, then automatically puts the new item in its place. No unused inventory becomes obsolete, and the tooling change takes place seamlessly.

At many companies, obsolete inventory is ignored until someone notices parts gathering dust on a shelf in a storeroom. By then, it’s likely too late to return products to manufacturers for a refund or credit. Even if the inventory is sold on the open market, its value may have decreased substantially.

Ponce believes this proactive style of supply chain management is better than the typical reactive approach, which merely responds to a need but doesn’t put systems in place to improve the replenishment process. The goal of MTS is to help customers gain better control of the process in order to drive out inefficiency and waste.