Process Improvement Case Study
Problem: Mismanaged Acquisition, Storage, and Usage of MRO Products
A mid-size adhesive and sealant manufacturer, located in NE Ohio, was suffering from several process-related issues. Plant operations and administrative department end-users and supervisors had been procuring lower-value, non-capital goods and MRO products, including safety and personal protection supplies and equipment. Purchasing and inventory controls were only in place for raw materials, packaging supplies, capital equipment, finished goods and service contracts.
There was no central authority for
managing the acquisition, storage, and usage of MRO items at the plant
operations or senior management level, causing numerous problems that
affected productivity, safety, and, ultimately, bottom line performance.
Major problems included:
- No formal processes for acquiring basic MRO products and few controls were in place; little stock management or planning was done.
- Safety and personal protection products were haphazardly managed and stock-outs were frequent. In some cases, inadequate protection was afforded the plant workers primarily because no one was trained in plant safety best practices.
- Some attention was paid to product cost, but no attention was given to the total cost of product acquisition and related back office costs.
Impact on Business
The major lapses in process oversight and organization led to a great deal of duplicated effort and little or no product or brand standardization. Employee safety was at risk from time to time, and employees frequently had personal stores of supplies squirreled away. As a result, there was no visibility as to the amount of dollars tied up in MRO inventory.
Inventory of common, lower-value repair parts was almost non-existent. Machine breakdowns frequently stopped production for protracted periods, until replacement parts or basic related supplies were obtained. Management could not track the annual MRO spend, or estimate the true impact on the total cost associated with running the plant.
Working with department supervisors and lead personnel, PenCo interviewed key employees, including end-users, to map the work and process flow associated with the acquisition, storage, control, disbursement, and related back office activities associated with MRO products.
Operating problems and obstacles were noted and summarized, and on-hand inventories were examined to identify frequently purchased product types and brands.
We reviewed purchasing and payables records to further identity products, and develop a sense of the total plant MRO spend. Based on this review, we estimated that MRO spend was nearly 22% of the total plant spend for materials.
PenCo developed a more efficient process flow that took the end-users out of the procurement and inventory management business, and put the control in the hands of the materials department. Through product and brand consolidation and standardization, SKU reduction was targeted.
A PenCo Vendor Managed Inventory service program for frequently used operating supplies and parts was developed, and 3 centralized storage sites were built within the plant. We also instituted a cost reduction program to stabilize product prices and reduce total cost. PenCo evaluated all safety products in use, working conditions, and potential hazards.
Process Improvement Results: Overall Plant Operations Cost Reduction
No longer spending time buying and handling MRO parts and supplies, end-users and supervisors saw a gain in productivity. Very little extra work was added to the materials department. Maintenance-related equipment downtime was reduced substantially, as was the number of SKUs. Although the value of on-hand inventory did increase, the benefits more than mitigated the investment. Weekly inventory stock checks and re-supplies eliminated out-of-stock events. Working with plant personnel, safety and personal protection equipment and supplies now comply with OSHA and OBWC guidelines.
The first year reduction in purchase price alone yielded a 15% savings, and the plant reported that PenCo's programs reduced overall plant operating costs.
To learn more about our successful process improvement services, please contact PenCo today.