Inventory system spares companies' cash IMPO Magazine
Today, it's more critical than ever to closely mange spare parts inventories. A few years ago, a typical manufacturer had $2 million to $3 million in spare parts inventory, but now that has climbed to $5 million to $25 million due to the increasing value of most materials kept in storerooms.
At the same time the value of spares has increased, the net profitability among U.S. industrial companies has steadily declined, putting pressure on manufacturers to look for new ways to increase profitability internally. In addition, government regulations require that spares be taxed in the same way as other plant assets.
Because most manufacturers don't have the time or manpower to track and control spare components, they are often neglected. Studies have shown that only about 30% of spare components are actually kept in a secure storage area. Typically, most components are scattered all over the plant floor, in cabinet, closets and forgotten stashes. As a result, manufactures frequently end up with a bloated inventory of duplicate units.
They also pay for new spares when the same items are somewhere in the plant, and often pay for repairs when components are still covered by warranties, as well as machine downtime when the part cannot be found.
Using RAC inventory control system. However, companies like Ford Motor Co. and Union Camp are saving hundreds of thousands of dollars by tightening their control of spare parts inventories. These manufacturers have taken advantage of a service offered by PSI, Livonia, MI. called Repairable Asset Control (RAC). PSI, a company known for repairing and servicing machines, has offered RAC for several years.
Unlike a typical storeroom management system, RAC completely tracks usable inventory and eliminates excess or obsolete parts, according to Robert Phillips, marketing services manager at PSI. At the touch of a key, the system shows the location of every spare in the plant. Users know how many of each item is in stock, and if they work. The complete history of every component is also known what it cost new, whether it has been repaired, and by which vendor, whether it is under warranty, and for how long.
The RAC system consists of four elements: a PC with custom software, Intermec bar coding wands and readers, and a technician from PSI, known as the RAC coordinator. This person works full time in the plant and is responsible for the setup, function and daily control of the service.
The coordinator, working closely with plant personnel, roots out every repairable asset in the plant and labels it with a bar code, which carries such information as the type of component, its maker, model and serial number, revision level, and other identifying characteristics. The part information is downloaded from the Intermec reader into the RAC computer. The computer transmits the data via modem to PSI's mainframe in Michigan.
This feature enhances the ability to "share the spare." Because the inventory of all clients is stored in separate files on the system mainframe a database totaling over 200,000 discrete RAC identification numbers if one client needs a spare part in an emergency, PSI can determine if it is available at another company. They then contact the client with the part to determine if they are willing to sell that item to the firm that needs it.
The system assists plants in managing inventories in the following categories:
Downtime. By eliminating redundant spares and keeping essential ones stocked and ready for installation, the manufacturer cuts machine downtime.
Warranty. The RAC database tells the client how much time is left in the warranty period for each component. By knowing whether units are still under warranty, the manufacturer prevents paying for covered repairs.
Purchase prevention. By knowing the exact number of a certain part on hand, the manufacturer does not have to pay for redundant replacements.
Inventory reduction. Throughout the tracking process, obsolete or redundant items are collected. The RAC coordinator, with PSI's extensive network of RAC sites and equipment users, assists the client in brokering off these unneeded components.
Certification. Included in the RAC service is the free certification of all spares. When extras are found outside the stores systems, they are sent to PSI's home office to determine if they are in working order. Those that test good are cleaned, packaged and sent back to the plant to be placed in RAC's working inventory. Bad units are given a repair cost and the client decides whether to repair them or not.
Ford finds early savings. One of the larger plants in Ford's electronic and fuel handling division is the Rawsonville, MI facility, which produces fuel handling systems, throttle bodies, fuel injectors, alternators, fuel pumps and wiper motors. It has a parts inventory of about $20 million. During the two years the facility has used PSI's RAC service, it has saved $1 million, says Ralph Miner, planning and logistics manager at Ford Rawsonville.
As soon as the system was established at Ford, it began paying off for the automaker. The coordinator, with PSI's extensive network of RAC sites and equipment users, assisted the company in brokering off several unneeded components.
At the same time, the database began playing a key role in slashing machine downtime. During a peak production period, for example, two motors failed that were critical to the operation of two separate assembly lines. Plant materials personnel were prepared to order a replacement until they were notified that two units were on a shelf in another part of the plant. Maintenance crews installed the motors, the lines continued to run, and Ford saved substantially with minimum downtime.
A few months later, in the plant's diecast area , a spare was located for a machine that was non-operational. Jerry Treece, material planning and logistics service manager, explains that Ford had previously requested the part from the manufacturer but was given a three-month delivery date. By consulting the database, they located the part that same day. By eliminating redundant components and keeping essential ones stocked and ready for installation, Ford has cut machine repair time substantially.
Another major savings came from knowing exactly which components were still under warranty, preventing Ford from paying for covered repairs. In fact, RAC saved Rawsonville $215,000 in warranty awards over the past 2 1/2 years, according to Miner.
This feature proved valuable when a Rawsonville maintenance supervisor was about to send several components back to the repair source. When the parts' identification numbers were entered into RAC database, ford discovered that all of the units were still within the warranty periods. The equipment was repaired under warranty at no cost to Ford.
"The automaker also benefited from the free certification of all spares. With the system, he sent them to PSI's home office for testing. The working units were cleaned, packaged, and returned to Ford. Some of the defective components were repaired and others were eliminated. The result, says Miner, is a leaner inventory of working items.
With the success of the system at Ford Rawsonville, the system is being installed at nine other Ford facilities. Linking the Rawsonville site with other Ford plants will allow the automaker to "share the spare" more efficiently than ever. "We're always looking for ways to reduce our costs. The service is just one of the new methods we've begun to use," says Miner. "With this in place, we can better concentrate on making the best electrical and fuel handling systems in the world.
Union Camp manages circuit boards. One of the largest inventories of circuit boards in the country can be found in Union Camp's Savannah, Georgia facility. The site has an inventory of thousands of boards worth about $10 million. In the three years that the company has used the RAC system, they have saved about $2 million, says Ray Edwards, mills stores assistant superintendent. The world's largest facility of its kind houses four manufacturing operations a pulp and paper mill, box plant, bag factory, and a chemical manufacturing facility and is run by nearly 3,300 employees. Because of Union Camp's size, individual departments had been acting autonomously with spare parts inventories.
"Some departments had spares that other departments didn't know about," says Edwards. "Someone would withdraw a component from the storeroom's inventory, causing it to fall below the minimum/maximum criteria. This would set up a re-order situation when, in fact, usable spares were available elsewhere in the mill.
"When it's just a few circuit boards, you can handle it," he continues, "but at Union Camp, we have thousands of boards, and you can end up in bad shape real quick."
When the company implemented the inventory system, they quickly began to eliminate redundant orders and unnecessary repair charges. In the first year alone, that resulted in an estimated cost avoidance of $650,000. A further savings came from taking advantage of the vendor's free certification service, knowing where redundant or unnecessary inventories existed, and knowing which suspected bad spares were actually good. Edwards says Union Camp succeeded in producing a leaner inventory of known good spares.
In addition, the system has been tracking failure rates of components and warranty rates of repair vendors, and has been identifying problem areas by flagging components that have excessive failure rates.
"Like most pulp and paper facilities, we were taking a long, hard look at our operations to reduce costs," Edwards notes. "Because inventory is such a large expenditure for the mill, we know we had a huge opportunity to shave costs. And the RAC service has played a key role in reducing those costs.
