Keeping an eye on inventory

Inventory management solutions for precasters

By Bridget McCrea

When Ron Jensen got into the precast industry in 1977, most companies took a “cookie cutter” approach to manufacturing. Rather than building products that met specific customer needs, most precasters maintained a high volume of standard, off-the-shelf products in stock. “At the time, 70 percent of the business was cookie-cutter,” says Jensen, production inventory control manager for Jensen Precast in Sparks, Nev. “Over the years, that’s shifted as the business has become more specialized.”

These days, Jensen says specialized could mean a completely custom product or a standard item that’s been modified to meet a customer’s needs. Either way, the seismic shift has changed not only the way precasters make products but also how they track their raw and finished goods.

“In this industry, we’re prone to small customers calling up and not really knowing what they want. What they need is a mind reader,” Jensen explains. “They call up and want it the next day, which puts pressure on the precaster who doesn’t always have the inventory to fulfill those requests.”

To better streamline its own inventory management processes, Jensen Precast installed Lilly Software Associates Inc.’s VISUAL Manufacturing about four years ago. The program handles functions like inventory control, purchasing, order management, shop floor control and cost accounting.

Jensen Precast uses the program company-wide, according to Jensen, in addition to several other software programs and Excel spreadsheets (used for production planning). “We get the pertinent information out of VISUAL and input it into the spreadsheet,” says Jensen, who calls inventory management “a big issue” for precasters, who need access to accurate, speedy information in order to make purchasing and sales decisions on the customized and/or modified products that they’re now turning out on a regular basis.

Some companies like Jensen Precast have turned to technology to help ease the burden. Others have yet to recognize the value of a streamlined, automated inventory management system. “Companies have the tendency to downplay or underestimate the cost of carrying inventory in several different locations,” says Dave Janiga, a lubricant engineer with Exxon Mobile in Houston.

As part of his job, Janiga works with the company’s manufacturing plants to hone inventory management processes. Over the years, Janiga says he’s come to realize that companies just don’t grasp the financial implications of inventory costs, nor do they make the necessary inroads to improve their processes on the purchasing side (raw goods) or sales side (finished goods).

Where things can get critical, says Janiga, is when an order comes in for a product that should be out in the yard, but isn’t because the company’s inventory management systems are inadequate. “Companies find themselves jumping through hoops – either from a customer service delivery perspective or a ‘rush-manufacturing’ perspective – to make up for these inadequacies,” he explains. “Many companies blame the problem on customer service or manufacturing issues, but in reality the issues can often be tied back to weak inventory management and control processes.”

The many facets
Getting a handle on inventory is no easy matter. There are raw goods like cement, aggregate and seals to keep tabs on, finished goods to maintain control of and myriad other elements (such as forecasting, planning and accounting) to consider when implementing a viable inventory management system. “Inventory management has a lot of different facets,” says Jeffrey Bodenstac, vice president of marketing for Boston-based Toolsgroup, a provider of inventory optimization software solutions.

At their simplest, Bodenstac says “inventory optimization” systems handle tracking and tracing of inventory and ensure that inventory counts are accurate. Some companies handle the process manually, he adds, while others utilize software tools that calculate optimal inventory within the supply chain to ensure that when a customer calls for 10 pieces of precast pipe to be delivered the same day, the order can be fulfilled.

“The worse thing that can happen is having a customer who is ready to buy and a company that doesn’t have the right product to sell,” says Bodenstac. “Not only have you lost the benefits of that particular sale, but you may also lose the customer to a competitor who can meet those needs.”

From a financial perspective, having a good inventory management system goes beyond just keeping customers happy, says Bodenstac – it can also add money to a company’s bottom line. “Inventories are expensive, particularly in the construction industry where everything is heavy and difficult to move,” he adds. “Holding too much of the wrong inventory can really eat into a company’s profits.”

At Vernon Hills, Ill.-based bar code manufacturer Zebra Technologies Corp., Stewart Itkin, vice president of marketing, works with a wide variety of manufacturers. Some have fully embraced technology to help ease the inventory burden, while others have not. From those experiences, Itkin says he’s noticed a direct correlation between the most profitable, progressive companies and those that are just plugging along. The key differentiator, he says, is usually technology.

“The companies that are content – as opposed to progressive – tend to be the family-run companies where the objective is simply to maintain the business at a certain level,” says Itkin. “It might work for them, but the firms focused on growth and increased profitability will find automated inventory management tools to be an important element in achieving those growth objectives.”

Finding solutions
Manufacturers who realize the value of good inventory management are faced with many options. They can use anything from a simple pencil and a legal pad to sophisticated Enterprise Resource Planning (ERP) systems – and everything in between. Once selected, the system must be purchased (generally for $10,000 and up), installed and then implemented across the entire supply chain for maximum effectiveness.

The good news, says Itkin, is that inventory management software is coming down in cost from just a few years ago, making it more affordable even for the small to midsize precaster. Options range from Microsoft-based solutions like White Plains to more sophisticated alternatives from companies like Red Prairie, Manhattan Associates, SAP and Oracle. “There are a range of software solutions available that tend to meet both the functional requirements as well as the budget constraints of manufacturers,” says Itkin.

For precasters, Bodenstac suggests finding a Material Requirements Planning (MRP) system designed for smaller manufacturers that specialize in build-to-order products. Such a system, he says, will be able to handle the special considerations that precasters deal with, such as measuring inventory, manufacturing inventory and determining whether each order is attached to a specific customer.

The price of such systems varies and is based mainly on the size of the company’s operations. Bodenstac says he’s personally installed an MRP system that cost $10,000 to $15,000, and that was used successfully by a $20 million company. At the other end of the spectrum are solutions from companies like SAP, which can run into the millions of dollars and used primarily by multinational companies. “One of the advantages of MRP software is that it’s been around for decades,” says Bodenstac. “As a result, there are a lot of different flavors out there that are well-suited to different companies’ needs.”

Just how quickly a company sees a return on that investment depends on what shape its inventory management was in to begin with, says Bodenstac, who advises companies to seek out solutions that address their specific inventory management challenges. If a company is having trouble managing orders as they move through the plant, for example, then it should consider a system with strong factory management capabilities.

The firm that is highly dependent on raw material prices, on the other hand, should opt for a setup with excellent sourcing capabilities that can be used to track vendor performance and variations between planned and actual raw material costs. “For a precaster, a 2 to 3 percent increase in raw material costs that wasn’t picked up early, understood and factored into costing could have a major impact on the company’s net result, and net profits,” says Bodenstac.

Realistic expectations
Inventory management systems aren’t miracle workers. Like any computer system, such systems are only as accurate as the data entered into them. When Jensen Precast’s sophisticated system spits out bad information, for example, Jensen says the problem can usually be traced back to human error. “Things flow downhill,” says Jensen. “No matter how good the system is, you’re going to make some human errors from time to time, and you’re going to think you have something on the shelf that you really don’t have.”

Overall, Jensen credits his firm’s inventory management solution with helping the company more accurately plan and forecast – two strategies that aren’t easy for a precaster to do. The system has also helped Jensen Precast avoid stock outs and backorders while keeping inventory at the level that it should be: not too high, not too low. “If you’re never running out of a product, then in all likelihood you have too much,” Jensen adds. “You’ll end up with terrible inventory turnovers and way too much cash tied up in your assets.”

Remember, says Itkin, that moving from a manual or antiquated inventory management system will require not only a financial investment, but also a commitment to implementing it across the entire company and training employees on how to use it to their best advantage.

“To be able to take advantage of technology solutions often involves process change and process improvements,” says Itkin. “That means doing things a bit differently and getting the buy-in and support of people who are going to be using it. True advantage comes not from simply automating the manual process, but by applying the technology to be able to optimize and change the process.”

SIDEBAR
Ready For Bar Coding?

Few if any precasters are using bar coding, but that doesn’t mean the technology can’t serve a true purpose in their operations. “I’ve heard some great stories about bar coding, but I’ve also listened to some terrible stories about bar coding,” says Ron Jensen of Jensen Precast. “It’s a lot like MRP – some people swear by it and some think it’s the worst. It all depends on how you implement it.”

To help break down the barriers between the precast industry and the bar coding options available on the market today, Stewart Itkin of Zebra Technologies Corp. singles out six key steps in the manufacturing process that bar coding can help facilitate:

Accurate Receiving: The ability to control what raw goods are received, and using bar code labeling (provided by the vendor or the precaster) to identify those particular items.

Inventory Management: Gaining knowledge of exactly what is placed in a particular location, whether it’s on the assembly line, in production or out in the yard.

Assembling Materials: Putting together the sets of materials that may be required for a particular process, such as a die or pigment that needs to go into the concrete.

Product Identification: Once a product is assembled you’ll not only want to know where it’s stored, but also when it is manufactured, the type of load or stresses that it might be able to bear, and other pertinent information.

Tracking Finished Goods: The ability to track and keep track of finished goods, and items that are completed and ready for sale.

Shipping Control: Gaining control over shipping, acknowledging when products are shipped in order to 1) filter them into an automated billing system and 2) ensure that the inventory is accurate and updated.