Minimum Inventory Maximum Productivity

Jan. 23, 2008
Manufacturers boost profits with smart inventory automation.

Maintaining a tight control over your inventory can do much more than just squeeze an extra margin of profit from manufacturing. It can also generate business. Just ask Daniel Smith, an MES analyst for ZF Lemforder Corp., an automotive chassis supplier with headquarters in Dielingen, Germany.

According to Smith, the key to getting this business is basing your inventory control on a manufacturing execution system (MES). In fact, he claims that it is the only way that the facility where he is stationed, in Tuscaloosa, Ala., can keep a nearby Mercedes plant supplied with about 200,000 axle assemblies a year. These assemblies come in wide variety, about 90 variations for the front axles and about 60 for the rear. The automaker needs them delivered in the correct sequence in about four hours from the time that it orders each batch.

Given the variety, pulling finished assemblies from a warehouse in ZF’s 157,000-square-foot facility is not an option. “It would be impossible to have enough space to store them all,” explains Smith. Consequently, ZF makes the assemblies to order, which requires setting aside only two truckloads’ worth of storage space for finished goods, one for front axles and the other for rear axles.

The deliveries include more than just the axles. They also include electronic genealogies containing torque readings, inspection measurements and other quality-control data taken from the manufacturing process. When Mercedes scans the bar codes on the axles as they enter its assembly line, the same genealogy shows up in Mercedes’ information system. If it doesn’t, Mercedes stops the line until it receives the data, and fines ZF $20,000 for every minute that the line is down.

Mercedes and ZF struck this deal when the automaker retrofitted and expanded its plant a few years ago. The new mix of products made there meant an almost 100-fold increase in complexity for suppliers such as ZF, forcing them to tool up for the job. In 2004, for example, ZF replaced its old Unix-based system with SimaticIT, an MES-based system from Siemens Energy & Automation Inc., of Alpharetta, Ga.

The MES relies on radio-frequency identification (RFID) tags to keep track of orders and raw materials. When work on an order begins, it tells the enterprise resource planning (ERP) system, which puts the inventory that will be used for the job into a work-in-process (WIP) status. “As the job comes off the line, WIP is relieved, and finished goods is increased,” says Smith.

The software also maintains an appropriate stock of raw materials, about 14 to 30 days’ worth from overseas suppliers and about two days’ worth from North American sources. In the ERP system, from SAP AG, of Walldorf, Germany, a technique called bill-of-materials (BOM) matching puts all of the parts and possible variations into a table. ZF maintains its stocks based on a six-month forecast of the part numbers that Mercedes expects to use. Four or five days from production, Mercedes updates the forecast with an expected number of orders and the associated part numbers.

“When they send us an order, we match that to our BOM table and assign a build code to that axle set,” Smith explains.
The ability to trace inventory as it travels through the factory has had profound ramifications for ZF. “It’s no longer like having a jumbled mess in a box,” says Smith. “By keeping better track of WIP and finished goods, we were able to reduce the amount of inventory on hand.” He reports that inventory turns have almost doubled, jumping from 33 in 2003 to 60 in September.

Perhaps more importantly, ZF’s supplier rating with Mercedes has been fluctuating between 99.9 percent and 100 percent. This performance has been fueling ZF’s business from Mercedes and other automakers.

Another benefit of going to MES-based inventory control is portability. ZF’s central development group was able to put sophisticated process, manufacturing and business logic into a library and make it readily available all over the world. “At Tuscaloosa, implementation of the MES-specific logic took between two and four weeks. The same implementation is used in Chicago and Duncan, N.C., as well as in England, Austria, Australia and China.

Don’t underestimate the value of this ability, advises Claus Abildgren, marketing program manager for production and performance management software at Wonderware, a Lake Forest, Calif.-based unit of Invensys Systems Inc. In multi-plant rollouts for which the first installation might take four months, he has seen installation at subsequent sites take only two weeks or less.

Generating this kind of portability is a matter of widening your perspective, which usually requires investing only another 10 percent to 20 percent. “If you’re concerned with work-in-process inventory, for example, spending a little more time up front to accommodate all kinds of inventory types could make the solution more useable down the road,” explains Abildgren.

Manufacturers also can apply this strategy within the same plant. Consider the experience of Brouwerij Martens, a privately held brewery in Bocholt, Belgium. More than 80 percent of its business comes from producing private-label beers, a competitive business characterized by low margins, high volumes and changing requirements. To support its strategy of being the lowest cost producer, Martens rebuilt its information infrastructure around Wonderware’s ArchestrA software architecture and Industrial Application Server.

This infrastructure allows Martens to use a suite of applications both to control its processes and manage its supply chain. Among them are Wonderware’s InTouch human-machine interface (HMI) for monitoring and controlling individual operations and its Manufacturing Execution module (formerly InTrack) for maintaining a genealogy of each batch and gathering the information needed by the supply chain.

“We now have more critical information, like consumed raw materials, produced beer and quality characteristics, than ever before,” says Paul Bloemen, plant manager. “All this information is communicated automatically to the ERP level, which means we also have easy access to accurate, real-time, complete information for inventory management, lot tracing and production costing.”

Although the first installation was in the brewing house, management followed Abildgren’s advice and invested the time up front to make the solution portable throughout the organization. It later extended the system to the filtration, fermentation-and-maturation, and packaging operations.

As important as ease of installation is for large companies that manage many facilities, ease of use can be a more important feature for those that operate a diverse mix of manufacturing processes. This is especially true for a contract manufacturer such as Lou-Rich Inc., a multi-plant supplier based in Albert Lea, Minn., that produces prototypes, machined and fabricated components, and mechanical and electromechanical assemblies.

The challenge there was to manage the company’s inventory and other resources more efficiently to support its growth. “We’ve probably doubled our business in the last three years,” says Anne Greibrok, inventory and production planning manager. “We want to have a very lean inventory to control costs, yet have very short lead times so that we can satisfy our customers.”

This is a tall order, considering the nature of contract manufacturing. Despite the forecasts that some customers might send a month in advance by electronic data interchange (EDI), contract manufacturers often have to turn cartwheels to find ways to accommodate changes that might come two days before production is scheduled to begin.

Lou-Rich’s old mainframe-based MAPICS system wasn’t up to the task. It took between three and four hours to run the material requirements planning (MRP) software. And because the software could not tolerate other users on the system, Greibrok and her colleagues would have to run it at midnight twice a week.

Real-time transactions

 This has not been the case since the company installed a new client-server system of enterprise software applications from Chicago-based IFS North America. Not only can Greibrok run MRP simultaneously while other users are in the system, but she also can now run it twice a day if she wants. Data collection is now highly automated. “Transactions occur in real time,” she says. “We’re able to run MRP and see our demands within minutes after receiving a customer order.”

The software also generates detailed routings that direct the appropriate materials to each operation all over the country and let support staff convert requisitions into purchase orders and send the orders by e-mail in a few minutes. “We’re able to order our material based on the dates that we are scheduled to run operation, which allows us to cut work-in-process and turn our inventory over more often,” says Greibrok.

Besides increasing inventory turns by at least 20 percent, the ability to distribute resources more evenly also has eliminated nearly all of the overtime and outsourcing that had previously been necessary to meet deadlines. The automation for capturing and handling the information, moreover, has eliminated the need to hire new people to handle the larger inventories generated by the recent growth in business. This only provides more evidence that MES-based software is a smart strategy to minimize inventory and maximize productivity—and accommodate that new business.

For an informative Webcast on integrating real-time information, visit

To see the accompanying sidebar to this story - "How to Measure and Optimize Inventory" - please visit

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