Expanding Lean Focus to Indirect Materials, MRO Items & Tooling
uncovering hidden costs of indirect material enterprise wide
..............................................................................executive white paper
ShelfPlus
2285 Executive Drive
Lexington, Kentucky 40505
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Phone: 800-838-0473
Fax: 859-293-6175
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www.compucrib.com
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July 2004
Contents
1 .....Indirect Material Defined
2 .....Lean Process Improvement from SRM and TCM
3 .....Defining Performance, Optimizing Inventory
4 .....Maintaining an Overall View
5 .....Smart Purchasing
6 .....User Defined Performance Analyzing and Cost Saving
7 .....Leveraging Corporate Views to Drive Supplier Negotiations
8,9 ..American Machinist Article - A Tool Room with a View - November 2003
“Everything was done separately. What one facility did wasn’t exactly what the other was doing.
With the new system it’s like one big factory with a lot of toolcribs.” - Jim Edwards, Business Systems
Manager, Boeing Commodities Standardization Initiative Team
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
What is Indirect Material?
Indirect Material Defined
Manufacturing facilities rely on processes to keep machines running and inventory optimized. These processes in some cases are well defined, but sometimes technology shortcomings do not allow for the correct gathering of information regarding these processes. In
other cases, they are well defined but its difficult to control inventory at the plant floor level.
Sometimes the defining of plant floor inventory processes have fallen by the wayside
because of other important issues.
It’s all too often this is the case when looking at the distribution of indirect material at the
plant floor level. Indirect material is defined as any inventory that does not go into the final
product but is used during the manufacturing process. This includes MRO items, tools,
machine parts, chemicals, shop rags and other inventory items. These items play a key role
in manufacturing the product but are peripheral to the product being manufactured. This
inventory is thought of as a cost of doing business, but in reality, it is a cost of doing business that with the right technology to define and support inventory distribution
can save millions and dramatically impact the bottom line.
Examples of Indirect Material:
Expendable Tooling (Drill Bits, Cutting Tools, Batteries, Inserts etc.)
Durable Tooling (Electric drills, wrenches, screw drivers, etc.)
Reworkable Tools (Tools requiring sharpening, drill bits, saw blades etc.)
Gages & Calibration Instruments
Chemicals, Glues, Solvents
Shop Supplies (Sand paper, rags, etc.)
PPE Products (Respirators, gloves, safety glasses etc.)
Maintenance & Spare Parts
Janitorial Supplies
Manufacturing companies of all sizes depend on these indirect materials to keep their plants
running smoothly and meet production goals. Indirect material is a large cost of manufacturing that can be tracked and controlled. Having the right set of solutions to assist in establishing the right plant floor processes is critical to controlling these costs.
“When we would take a physical inventory, we would sometimes find a few hundred dollars
worth of inserts sitting next to a machine. This is no longer the case.” Les Kibler, Manufacturing
Purchaser, Stream Flo Industries
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
1
Lean Process Improvement
Getting Lean with SRM and TCM
Store Room Management (SRM) and Tool Crib Management (TCM) applications have an
immediate impact on several aspects of any manufacturing facility. Getting your tool cribs
and store rooms to operate more Lean requires plant level management focus. First, it
requires a look at your current shop floor processes with an eye on improvement. Second,
it requires the right set of adaptable solutions to get you to reach your cost saving goals.
Third, it requires a management focus on measuring and analyzing performance as it
applies to cost saving goals. Fourth, everyone involved must realize that inventory management and the push towards Lean Manufacturing is a long-term plan.
Everyone agrees that there are many challenges to overcome when attempting to operate
more Lean. As your operation addresses the challenges remember there are several key
components to a successful plan for inventory control:
1. First and foremost and sometime the most difficult to do is to make the decision to make a
change.
2. Get your manned Storeroom or ToolCrib inventory under control.
- Implement a system that can handle all inventory types
- Make certain that the system:
- can address your current processes
- can report on information important to your operation
- handles cost accounting
- focuses on inventory reduction
- identifies high-use items and areas of use
- can create common item numbers
- is configurable
- can share information with other systems
- provides multiple levels of security & access restrictions
- has robust replenishment features
- is ODBC compliant
- is easily expandable
- can address future processes
- can grow as you grow
3. Add radio frequency scanners to speed certain processes like issuing and
receiving, cycle counting, kit replenishment, etc., improve accuracy and simplify
processes
4. Review history to identify decision making criteria.
- Identify high-use areas or Items
- Identify usage spikes
- Identify problem areas, employees or machines
- Identify weak processes
- Identify needs for reducing time spent on processes
5. Take high-use items to point-of-use utilizing information retrieved from
your crib management system to reduce downtime and travel time.
- Vending stations in high-use areas
- Drawer systems, carousels, and helix style point-of-use devices
- Strategically placed distribution stations
- Transactions linking back to the crib
“Since the the introduction of CribMaster at the
Ford Dagenham operations plant, they are
proud to announce they have been awarded a
Grade 7 within the Industrial Material Flow
(IMF) accreditation on Lean Manufacturing procedures.” - Kardex Systems UK Case Study, 2001
6. Add other facilities with a data-warehouse and begin eliminating surplus
inventory through automated transfers to and from other facilities.
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
2
Defining Performance
Lean Inventory Optimization
In order to reach the goals of your Lean Initiatives and Supply Chain Management programs, you simply can’t ignore indirect materials. The cost of indirect materials is significant. The processes involved with their use should can also be streamlined to impact the
bottom line. Implement the right solutions, which may be a combination of software and
hardware, to begin optimizing inventory and defining performance and make more progress
towards becoming lean and streamlining your supply chain than ever before.
In the early 1990s supply chain management started to become a key contributor to the
bottom line of manufacturing firms and other organizations. Lately, Lean Manufacturing has
caused management to become processed focused and has also proven it has contributions to the bottom line. Organizations who have achieved the most out of effective supply
chain management and lean initiatives have done so by effectively developing and
utilizing systems and processes at the organization and individual level.
The improvement opportunities of your organization depends on the maturity of your
supply chain processes. Some organizations who have paid little or no attention to
the supply chain will benefit from measuring spend, eliminating dead-stock inventory
and stock out emergency shipments, consolidating suppliers and negotiating better
supplier contracts. Other organizations who have devoted energies to their supply
chain management will have already received the benefits of price-volume leveraging and will need to look elsewhere to continue to impact the bottom line. These
organizations will need to look at aspects like; EOQ calculations at the purchasing
level, effectiveness of buyer groups, purchasing automation, reducing the cost of
generating purchase orders and shortening trip time for inventory acquisition. It can
even go as far as optimizing inventories corporate wide by connecting multiple
plants, transferring surplus inventory between plants and retaining a total view of
indirect materials.
Having a system that can expand as your supply chain management matures and a system
that can support the processes you have set in place for your lean initiatives is key to a
successful long-term plan. It is common in the quest for the goals of improved supply chain
management and lean operation to ask the question, “Where do we go from here”? This is
why it is critical to have a system that can adapt to the maturity level of your management
focus. There is always room to grow, improve processes and cut costs. Having the technology to support your efforts and retain an overall view of your operation is key to making
continued advancements towards your goal of obtaining optimum inventory control.
“We’re probably 75 percent faster than we used to be. It’s a huge jump,”
Sgt. Bob Goddard,
Whiteman AFB
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
3
Purchasing
Maintaining an Overall View
An Overall View of Purchasing & Usage Enterprise Wide
Intelligent corporate business decisions are key to controlling overall costs. The only possible
way to make intelligent business decisions (especially concerning your supply chain) is by
maintaining an overall view of purchasing and usage history enterprise wide. By obtaining and
maintaining an overall view, you can remain focused on continual cost reduction from many
different supply management areas:
- Supplier Price Leveraging Based on Quantities
- Supplier Consolidation
- Inventory Consolidation
- Locating and Eliminating Dead Stock
- Reduce Crib Management Labor Cost
- Measuring Supplier Performance
- Transferring Surplus Inventory between Facilities Instead
of Purchasing New
These are a few of the immediate ways cost reduction will
impact your bottom line when obtaining and maintaining an
overall view of your inventory. A system that can not only
provide a view of your inventory but also provide the functionality to complete and support the cost savings processes
is crucial to achieving results. An enterprise wide system
should automate these functions and allow management
more time to analyze cost savings rather than gathering
information.
Purchasing
Purchasing
CM DataWarehouse
With any lean initiative, continual improvement is a key part
of the plan. Lean programs are developed to save cost and
Purchasing
Purchasing
streamline manufacturing today but always have a focus on
the next step. In order to really benefit from an inventory
management lean initiative, it is crucial to have limitless
expansion as your methods of your indirect materials supply
chain management mature. Getting control of your operations indirect materials within the tool cribs or store rooms
located in your facility is an obvious place to begin. Maybe start in one main store room or tool
crib and begin by automating purchasing and trimming big dollars from the cost of generating
PO’s. Then eliminate dead stock and greatly reduce carrying costs. In a specified amount of
usage time, run an analyzer report and find the Gordon Graham suggested order point for
each bin location in the crib and start carrying optimum inventory levels which typically means
a cost savings of about 15% - 30%. Get other cribs licensed and in order and connect to the
same database following the same procedures in them. Reduce soft costs by adding point-ofuse devices strategically placed in actual places of usage. Add other locations and link all
inventory through a common item number system and push all locations transaction information to a data warehouse to make all locations virtually one. Leverage information to purchase
globally rather than a single location. And so on and so on....You can clearly see how continuous improvement is part of a system built with Lean cost savings in mind.
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
Purchasing
4
Smart Purchasing
EOQ - Economic Order Quantity
The Gordon Graham method of inventory management has become the standard by which
all other inventory management methods are judged. The reason Graham methodology is
so popular is simple it works.
In Graham methodology, the Economic Order Quantity or EOQ is defined as the optimal
quantity to purchase. The formula attempts to balance the cost of ordering and the cost of
carrying to achieve the lowest cost of ordering and handling inventory. There are a few critical pieces of data that is used to achieve the ultimate outcome of optimum inventory levels.
It is crucial you are collecting good data to base your work on. If you are not, should not
move on until you are. Collecting good data is the key to making smart purchasing decisions. Seemingly small changes in values of data used in Gordon Graham formulas can
affect the outcome dramatically.
This radically reduces
inventory procurement
and management costs
for the MRO. Those who
are still using a manual
system can save up to
40%.
- Aviation Maintenance
October 2003
Keep this in mind when selecting a system to manage your indirect materials. Make sure
the system is gathering the right information to effectively make these calculations and can
easily be reported without creating a new system to simply generate the reports. In order to
make smart and accurate purchasing decision be sure the system is gathering and using
the following pieces of information:
Safety Stock - be certain the system correctly calculates and suggests safety stock
amounts. Safety Stock = Demand per day X Lead Time X P Factor
Order Point - The order point is the very last place an order can be placed without consuming safety stock. Order Point = ( Demand per Day X Lead Time ) + Safety Stock
Line Point - A product line is defined as a group of products that can be purchased on the
same purchase order. When we issue a purchase order we do not purchase just a single
line item we purchase a group of items in order to make freight or meet vendor minimums.
Make sure the systems is making accurate Line Point decisions when generating POs.
Surplus Point - The surplus point is the theoretical maximum that you should ever have on
hand using the Graham theory. You should never guess at a minimum or a maximum
unless you have not gathered any information in the past.
In the Graham theories and formula calculations you’ll notice that the “when to order” is
determined by the order point and line point and that the “how much to order” is determined
by the EOQ. This method is using purchase order timing to manage the level of inventory
investment.
CribMaster automatically calculates these formulas based on usage and will either suggest
or automatically adjust min/max and order points based on values calculated from actual
usage figures. No guess work...a proven method used effectively means smart purchasing.
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
5
Cut Crib Management Cost
Reduce Labor Costs
CompuCrib cuts your payroll costs by eliminating the need for one or more crib attendants.
Now, instead of crib attendants checking parts in and out...and walking endlessly to retrieve
and deliver parts, maintenance personnel pick needed parts themselves, any time, day or
night shift.
Parts Security
CribMaster has several levels of security that enable tracking and controlling inventory. You
can control access by user defined field, limit access to shelves, control inventory by item limits as well as additional access control and security reporting capabilities
Each parts withdrawal is recorded via video camera and is time- and date-stamped.
Transaction records show who withdrew parts, which parts were dispensed and in which cost
center they will be used. Key CompuCrib Inventory Management features make it easy to:
Monitor real-time inventories
Make quick decisions based on accurate reports
Integrate multiple tool cribs, satellite bins and automated tool dispensers
Track MRO items and maintenance work orders
Handle consigned inventory
Manage gauge calibrations
Increased Floor Space
CompuCrib enables you to save floor space and reduce the costs involved with taking up too
much floor space. Reduce floor space and reduce cost while freeing up room for expansion
and reorganization.
At one customer’s
location, Ziegler
installed a bar code
inventory system for
gloves. (CribMaster)
The account’s glove
purchases decreased
from $225,000 in one
year to $85,000.
- Progressive MRO Distributor,
“Proud Past, Bright Future”,
January / February 2004
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
6
Leveraging Corporate Views for Supplier
Negotiations
Price Breaks from Corporate Supply Contracts
Back to the basics. The ultimate leverage you have when negotiating contracts with suppliers
is order quantity. You certainly stand a greater chance of getting a better deal on 70,000 pairs
of safety glasses rather than 10,000 pairs of safety glasses. Do you have a system in place
where you can confidently attempt to establish corporate contracts based on actual usage figures (not order figures) of each of your facilities? Do you have a single system that has
tracked usage, ordering, maintenance tasks and optimized inventory levels for each of those
facilities?
Wouldn’t it be nice to be able to run a usage report on every common mro item or tool to all of
your facilities? If you can clearly see actual usage of like items across your entire enterprise,
you can negotiate contracts with confidence that you are not over purchasing your indirect
materials. With CribMaster all of your indirect material inventory are linked by a common item
number and when used with a CM Data Warehouse, you have enterprise wide reporting at
your finger tips. Optimum order quantities, optimum inventory levels and enterprise-wide transferring and reporting...an incredible impact on your bottom line.
One Location Contract
10,000 Pairs of Safety Glasses Yearly = $6.00 per pair
25,000 Carbide Inserts = $43.50 per 10
25,000 Drills = $2.00 each
5000 Vice Grips = $14.00 each
Corporate Contract
70,000 Pairs of Safety Glasses Yearly = $3.50 per pair
175,000 Carbide Inserts = $33.50 per 10
175,000 Drills = $.95 each
35000 Vice Grips = $9.00 each
Contract Savings
$420,000
$761,250
$350,000
$490,000
vs
vs
vs
vs
$245,000
$586,250
$166,250
$315,000
=
=
=
=
$175,000
$175,000
$183,750
$175,000
difference
difference
difference
difference
TOTAL COST SAVINGS = $708,750 with 4 products
..................CompuCrib Inventory Management System | ShelfPlus, Inc.
7
November, 2003
Toolroom with a view
By Charles Bates, senior editor
Boeing's Tool Services groups control the aerospace company's portable and perishable tooling and supplies. Each day,
these groups receive, issue, coordinate, track, and monitor the use
and replacement of various tools needed on factory-floor production lines. At the company's Everett, Wash., facility alone, this
responsibility involves up to 12,000 transactions on any given day.
To keep Everett and its other manufacturing facilities on the same
materials-management page, Boeing uses CribMaster software
from WinWare of Marietta, Ga., to improve kitting capabilities and
reduce inventory through better control, visibility, and sharing of
existing inventory. The Windows-based manufacturing software
does these through barcoding, wireless data-terminal devices, and
automated tool-retrieval (ATR) units.
Currently, CribMaster is in seven Boeing facilities across the U.S. -Everett and Renton in Washington state, the two largest sites using
it; Mesa, Ariz.; Oak Ridge, Tenn.; Cecil Field, Fla.; Tulsa, Okla.;
and San Antonio. Many other sites are scheduled for implementation by year end.
CribMaster consolidates what was once handled by 11 different
systems into one. "Boeing's different plant locations are now connected," says Jennifer Halford, project coordinator at WinWare.
"Through common item numbering, the company tracks what each
site/toolcrib has, and, if needed, transfers items from one toolcrib
to another or from one facility to another."
Boeing improves its kitting capabilities and reduces
inventory through better control, visibility, and sharing of
existing inventory using the CribMaster software system
-- which incorporates barcoding, wireless data-terminal
devices, and automated tool-retrieval units.
CribMaster's Data Warehouse links every Boeing CribMaster site.
The aerospace manufacturer replicates its local inventories and
stores the data in the Warehouse. Records now travel with transferred materials, so Boeing can track history, usage, and other pertinent information. Prior to the system, if Boeing sent tools from
Everett to Chicago, for instance, Everett had to remove them from
its inventory, crate, and ship them. Chicago would then add them
to inventory. "With the new system," comments Jim Edwards, business systems manager on the CribMaster project for Boeing Tool
Services, "it's like one big factory with a lot of toolcribs."
Along with the Data Warehouse function, Boeing standardizes its
supplier contracts by evaluating what each plant is using and how
much it's paying. "Everything was done separately," says Edwards.
"What one facility did wasn't exactly what another was doing. Each
plant negotiated with suppliers on its own, so a Boeing plant on the
West Coast, for example, might have paid $3.00 for an item for
which an East Coast plant was charged $10.00." With the materialusage information supplied by the CribMaster system, Boeing
negotiates single contracts so each facility pays the same amount.
The system also connects Boeing to its suppliers through a purchasing interface, called SSPM, and allows for multilevel approval
and visibility. To generate data, CribMaster incorporates barcoding,
wireless handheld devices, and ATRs. Boeing marks its tools with
Workers on Boeing's manufacturing-and-assembly
moving line have necessary items/tools at their fingertips, but if they do need something, the CribMaster system tells them exactly where it is.
November, 2003
continued
either an item or serialized-type barcode -- serialized barcodes let a shop track a tool's calibration dates and other such
information.
"Boeing has a lot of regulations concerning the tools it works with," points out Halford. "CribMaster informs the company
when its measurement and gaging tools were last calibrated and when they will need recalibrated/recertified."
Boeing toolcrib attendants read barcodes using wireless, handheld devices. They collect, in real time, tool information
such as when an item is issued, returned, ordered, or sent to calibration. "Attendants are no longer running back and
forth to a computer screen to enter data," says Edwards.
Boeing's Everett facility has some point-of-use, vending-machine-style ATRs for its more critical and difficult-to-track
items. Mesa uses the same style ATRs as team toolboxes, and Oak Ridge, along with Tulsa, are also vending-machine
oriented.
CribMaster software works with many different types of ATR units. Most have touchscreens for selecting tools, while others require that users scan their employee badge or barcode to check out an item. PC versions of ATRs have a wedge,
or tethered, reader that lets users scan badges or barcodes instead of typing the information into the PC.
Boeing's vending units are like small toolcribs containing only certain items. For instance, units in Everett's clean, seal,
and paint area control the dispensing of respirators. Mesa, on the other hand, has banks of the machines so machine
operators can get the tools they need.
"Before CribMaster," says Cindy Wall of Boeing Commercial Airplanes' public relations and communications department,
"workers needing a tool might take as long as 45 min to hunt one down." And with Boeing's recently incorporated movingline manufacturing-and-assembly system, work stopped until employees returned.
"This doesn't happen anymore," she says, "because everything is pre-kitted ahead of time, so line workers have all the
necessary items/tools at their fingertips. If they do need something, it now takes only 5 min because the CribMaster system tells them exactly where it is." According to Edwards, arranging inventory for such point-of-use involves a lot of kitting, and the CribMaster system also features a robust kitting process.
A system just for toolcribs
Jim Edwards is leading the effort to get all Boeing's Tool Services groups on CribMaster inventory-management software.
He's part of the company's Commodities Standardization Initiative team consisting of tooling-services managers working
to standardize processes used to acquire supplies and materials.
As part of that initiative, managers from 30 toolcrib sites across Boeing met and brainstormed about what they wanted
out of an inventory-management system. "We wanted a system that dealt with toolcribs," says Edwards. "We didn't want
an MRP, personnel, or accounting system," he adds. "We chose WinWare because its only product was a toolcrib system, and it understood our manufacturing processes."
Boeing's Mesa and Oak Ridge facilities were the first to use CribMaster software. Both incorporated it on their own about
four years prior to the Standardization Initiative, and the program gained the attention of team members. At that time, the
Everett facility managed its inventory using four different systems and was looking to simplify and standardize to save
costs. The other four facilities that now have CribMaster were in similar situations.
"Going from 11 systems to 1 has been a cultural change," comments Edwards, "and we are continually evaluating ways
to use the CribMaster system. As far as capabilities, the system provides a lot more than we expected, and we're adjusting to that."
Edwards foresees Boeing's use of CribMaster software growing into other areas. He also predicts an increase in point-ofuse vending machines and more interaction with suppliers through the system.