Automatically better

Automated tool dispensing systems help distributors help their customers cut costs.

by Rich Vurva

North American manufacturing plants may see a dramatic increase in the number of automated inventory control systems in the next year or two. Manufacturers and distributors of point-of-use dispensing systems say the market is poised for growth.

“The point-of-use dispensing industry has grown at a rate of about 10 percent a year for the past 10 years,” says Steve Pixley, president of Huntington, Calif.-based AutoCrib Inc., which produces hardware and software solutions that automate and solve many common inventory management problems. “By the end of December 2004, we already booked enough business to double our sales in 2005. The industry is ready to explode.”

Automated inventory control systems range from helix/coil-based vending systems that look like candy machines, to storage lockers and cabinets, carousel systems and machines that use vacuum pressure to retrieve gloves or other lightweight safety supplies. They’re activated by keypads, scanners or touch screen technology. While the systems are most commonly used to dole out cutting tools, they’re becoming increasingly popular ways to dispense hand and power tools, personal protective equipment and even office supplies.

What’s driving the growing interest in automated inventory solutions? Primarily, it’s the need to reduce costs and operate in a lean manufacturing environment to compete effectively against low-cost foreign competition.

“Instead of having a central tool crib, which was prevalent in manufacturing in the ’50s and ’60s, you have cellular environments now. By using automated inventory systems, you cut down travel time for people going from their location to the store and bringing it back,” says Randy Bergstrom of cutting tool distributor Deco Tool in Omaha, Neb.

Hoarding disappears
It’s easy to understand how automated point-of-use dispensing systems help manufacturers operate more efficiently compared to the inefficient systems they replaced. Many plants have a centralized tool crib or storage area with a crib manager or purchasing agent responsible for replenishment. When the crib attendant notices an empty bin, he places an order with a supplier or records the needed item in an out-of-date recordkeeping system using index cards or some other paper-based process.

Because employees don’t trust the bin to have the products they need, they hoard supplies. Seeing empty bins, the attendant orders more products, and inventory costs quickly skyrocket out of control.

“The company knows it bought the inventory and knows it didn’t consume it, but doesn’t have any visibility,” Pixley says.

Dramatic change
By contrast, an automated dispensing system enables plants to reassign the tool crib attendant to more value-added tasks, gain more detailed usage data and reduce inventory costs. The system automatically reorders product when it drops below a pre-determined condition and the supplier replenishes the system within a day or two. Once users see this happening, they learn to trust the system and hoarding is eliminated.

“Rather than hoarding products in their own secret stash, workers know it will be there when they need it. Usage drops also because workers know all issues are reported and tracked by the software,” Bergstrom says.

Consumption often drops dramatically, says Steve Brewton of R.G. Brewton Inc. in Bridgeville, Pa. The AutoCrib system Brewton installs for customers gives them greater control and accountability, and Brewton repackages products so customers can dispense them in the required quantities. For instance, instead of checking out a box of 10 carbide inserts because that’s how the tool manufacturer packaged them, a CNC operator can retrieve only the three to six inserts he’ll need during his shift.

“In every single case where we’ve installed an automated inventory system, reduction in consumption has exceeded 20 percent,” Brewton says.

After Peel Industrial installed multiple modular drawer units at a major aerospace manufacturer headquartered in Montreal, the company’s annual cutting tool expenditure immediately dropped 40 percent in the first year, representing huge dollar savings. Employees must first scan their ID badge to retrieve the tool stored in the CribMaster ToolCube system. Drawers open far enough for the employee to withdraw only the approved quantity of the item.

If distributors can predict decreased usage, why should they promote the system to their customers?

Distributors and system providers say customers typically migrate the majority of their business to the supplier that provides the point-of-use dispensing system because it reduces their costs. This results in a larger market share for the distributor and a net gain in sales and profitability.

“This helps me build a long-term relationship with customers. Hopefully, they’ll see that we’re in it for the long haul. They may give us additional commodities to handle besides cutting tools,” says Reg Middel of Peel Industrial, with operations in Ontario and Quebec, Canada.

Pixley says it’s common for a distributor’s business to double in a few years after implementing point-of-use systems in its market.

Eliminate surprises
Giving customers greater visibility of their total expenditures helps them quickly recognize spikes in usage. Some automated inventory software system designers build critical alerts into their software. If an item is crucial to keep a plant running, the system alerts the distributor when that item runs low.

Distributors also say the inventory systems help them automate their own procedures. For example, at the Montreal aerospace facility where Peel Industrial installed modular storage units, the system automatically issues two e-mails per day. One e-mail summarizes all of the transactions from the previous day, triggering a third-party software program to invoice the customer. The second e-mail notifies a picker in Peel’s Montreal branch which items need replenishing based on predetermined min./max. calculations.

“Before our staff member shows up for work the next morning, the packing slip has printed telling him what items he needs to pick,” says Middel.

Peel Industrial also set up a custom invoicing program that invoices its customer by employee, by department and by plant. It lets them know exactly where they’re spending their money. If one machine operator uses three 5/16-inch end mills per day and another operator checks out six, it raises a red flag. The operator might need retraining, he may be hoarding supplies, or it may signal equipment or material problems.

The AutoCrib system breaks usage down to a “days of supply” calculation. Based on the lead time, the system calculates when and how much to reorder. Pixley says min./max. calculations in production facilities don’t take into account the spikes in demand.

“Unless you are constantly managing the reorder points and reorder calculations, you will have shortages and overstock conditions in the machines. Remember, one of the guiding principles of lean is that before your company can become really lean, your suppliers must also use lean processes,” Pixley says.

In the end, automated inventory systems are valuable tools because they provide distributors with access to data that reveals what’s happening inside a facility. By closely analyzing the data, distributors can increase their value to their customers.

“It’s not about the data, it’s what you do with the data,” says Brewton. “In many cases, we’re looking at data the customer never had access to before. Carefully analyzing that data enables us to deliver savings to our customers.”

This article originally appeared in the March 2005 issue of Progressive Distributor. Copyright 2005.

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