Managing Indirect Material is Worth It
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. In reality, it is a cost of doing business that - with the right technology to support inventory distribution - can dramatically impact the bottom line. After all, this inventory is not considered an asset for your organization. It is considered an expense. Because of this, any reduction in this inventory immediately hits the bottom line.
Manufacturing companies of all sizes depend on indirect material to keep their plants running smoothly and to meet production goals. By properly managing indirect material, you are increasing the effectiveness of those processes. Always having those materials needed to complete the task or being able to locate them quickly are crucial to obtaining smooth processes and the goal of becoming lean. Having those items on hand without carrying too much inventory is a lean principle we always attempt to reach and is crucial when this inventory is attached to a process. Lean is sometimes defined as eliminating or reducing waste. By effectively managing inventory, you eliminate wasted money on too much on-hand inventory, wasted time searching for tools, wasted man hours searching for inventory, wasted production time when attempting to locate items, and wasted money from pilferage and hoarding of inventory.
Many years ago, the obvious way to control this inventory was to centrally locate the inventory within the plant and control inventory in a tool crib. A person or persons would be responsible for managing the indirect material and handing out the inventory to the shop floor workers. Challenges were faced with travel time to the crib and the associated soft costs. Additionally, a good technology system to manage all the aspects associated with this type of inventory - calibration schedules, inspections, kitting, order points, supply chain management - simply did not exist. Later, to solve the soft-cost issues, inventory was moved from the tool crib to locked cabinets or toolboxes closer to the point of use. There was a great challenge in this scenario as well. If limited staff had access to this inventory, there would often times be lengthy waiting for someone to unlock the cabinet. If everyone had access, you had no wait time but very little control of the inventory. This also created a great deal of challenges especially at the re-order level.
Next came vending machines which still make sense today for some inventory. The challenge with vending machines is that not all types of indirect material fit into a vending machine. Also, vending can sometimes have a negative cultural impact on the workforce. Thus, we have come full circle. The crib of the future now constitutes a robust software application to assist in managing all of those needed aspects of indirect material with technology that enable Passive Issue Transactions. RFID and other technologies have allowed a new line of devices to be developed. These devices retain a high level of accountability and have removed any involvement from the user. This new breed of tool crib, store room or parts room management provides a way to achieve those cost reductions without hindering the workforce.
A Dramatic Soft-Cost Reduction
Part of the continual improvement process of indirect material management is reducing soft costs. After you gain control of your inventory and processes as they are currently, it is time to look for more cost savings and reducing travel time to store rooms or tool cribs is an immediate solution. But how do you retain inventory control at those locations and also retain the reporting capabilities that got you the improvements up until this point?
In order to effectively gather correct usage information, you need to track individual usage transactions. In other words, you can issue or transfer items from a main store room to a locked cabinet next to a machine, but how do you know how much is actually being used and when? How can you identify discrepancies of operation if you aren’t tracking actual usage? The correct way to effectively reduce travel time is to locate items at point-of-use but retain actual usage information.
Another key part to this is the ability to track and order that inventory in either a total plant quantity or at the point-of-use device. By tracking and ordering items at a plant quantity, you reduce the number of purchase orders and enable greater quantity discounts. By ordering by point-of-use device, you can enable distributors to manage inventory within that machine without affecting the inventory counts for the rest of the plant. Either way, you need to have a system that will do both. More importantly you need to have point-of-use devices that completely tie into your indirect material inventory management system. No matter where your inventory is stored or distributed, it needs to be managed in one cohesive system to see the greatest cost reduction.
Most of all these point-of-use devices need to allow workers to quickly get what they require and then get back to work. These devices need to be very accurate so the workers are confident that supplies will be there when they are required. They also should create a sense of accountability without creating a sense of big brother watching.
All Areas of Cost Reduction
Therefore, a good inventory management solution designed to minimize employee involvement with passive transactions will impact the bottom line by reducing soft costs such as travel time and search time for inventory which increases production time. Defining your processes and managing your supply utilizing this technology will also allow you to:
- Re-coup expense by reducing inventory overspend
- Optimize order quantities
- Consolidate suppliers and negotiate price based on corporate use quantity
- Ensure PM tasks are scheduled and material is ready when the task is to be performed
- Eliminate dead-stock inventory and identify current dead-stock for resale
- Reduce overnight shipping expense
I see it everyday. A little thought, work, preparation and the right technology impacts the bottom line immediately. Trust me when I tell you that Managing Indirect Material is worth it.
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