At Ingersoll-Rand, inventory is a whole new ballgame
INDIANAPOLIS, Ind. While most commentators divide businesses neatly into Old Economy manufacturing and New Economy high technology, customers are living almost exclusively in Internet time.
Ask Gregory Bunn, who manages inventory and procurement for the decidedly Old Economy Ingersoll-Rand Exit Device Division on Tobey Drive. "What customers used to want in two to three weeks, they now want in two to three days," Bunn says. "That leads to a new level of the classic inventory management challenge: having parts for manufacturing products in stock while keeping inventory low."
Ingersoll-Rand Co., which recently renamed itself IR, is known for its industrial compressors and climate-control equipment. IR's Exit Device Division manufactures commercial door-closing devices and locks and is one of the top players in the world market.
"In its own quiet way, IR has been a leader in implementing new manufacturing processes and management systems," says Leroy B. Schwarz, professor of management at Purdue University's Krannert Graduate School of Management. "IR's recently retired CEO and Krannert School alumnus, James E. Perrella, was one of the founding fathers of Purdue's Dauch Center for the Management of Manufacturing Enterprises, one of the nation's first university-based centers for manufacturing management."
IR's Exit Device Division annually spends $40 million to buy 5,000 different parts from 150 suppliers to produce 100,000 products.
"Inventory management is only a problem when you can't get the parts to complete an order," Bunn says. So the former U.S. Marine and veteran of Sony and Caterpillar corporations was hired a year ago to lead a re-engineering of the whole inventory and purchasing operation. Together with company vet and forecasting analyst Ed Cahill and their boss Dale Flanders, Bunn went to work on working better with IR's suppliers.
"What we heard from upper management was that with the old purchasing process, parts shortages caused 90 percent of the division's missed deadlines, we had too much of the wrong stuff and not enough of the right stuff, and that our supplier systems were terrible," Bunn says.
The highly touted just-in-time inventory method was not an option because of the number of the division's suppliers and the specially engineered parts. The team did the next best thing instituted a vendor-managed inventory system, in which the suppliers own the inventory that is stored at the Tobey Drive facility until the division uses it.
Schwarz says vendor-managed inventory systems are coming more and more into favor. "The grocery industry was first to put VMI into widespread use about five years ago," Schwarz says. "Since then, VMI has spread to other industries. For example, Dell uses VMI for most of the components that go into its computers."
The suppliers are buying in. "By mid-July, 52 percent will have signed up," Bunn says. The advantages to the suppliers are payment in one to five days and the ability to plan, forecast and be more flexible in their manufacturing. Both IR and its suppliers are spending less administrative time finding and tracking parts. Suddenly, those terrible supplier systems are doing a pretty good job.
IR has adopted the vendor-managed inventory system as the company-wide standard, and the division's sector headquarters is now moving to Indianapolis.
Bunn's team simultaneously attacked on the information front. "We needed more information and better information in an accessible form," Bunn says. "What we knew going in was that a healthy inventory means that we don't buy a year's worth of material or run out. It's our job to protect against this."
Using their existing enterprise resource planning system and an Oracle database, the team created a computer program that provides all the descriptive, historical and pricing information for each part the division buys. This program, which the team adapted from off-the-shelf standard office software, replaces a complicated, multi-screen system and allows the division to reduce its number of parts buyers from 10 to four.
Now the data system easily generates a myriad of reports to further hone and forecast purchasing and inventory needs. "The more detailed information we have, the better we can manage inventory inexpensively," Bunn says.
The team also built common sense into the new system. The Exit Device Division now buys six months' worth of the one-cent rivets it uses in many of the assemblies it manufactures. That allows Bunn's group to spend more time managing the complex, high-cost inventory items, such as circuit boards.
There are some old-fashioned lessons here that apply not only in managing purchasing and inventory, according to Bunn, but also to a high-tech world.
"With sharp enough people, a homegrown system can be simpler and more specific than an expensive, consultant-based solution," Bunn says.
Schwarz agrees. "Although consulting firms often know more about alternative manufacturing-management systems and have experience in installing them, a company's own managers and workers typically know better what it needs and how to get a given management system installed in its plant," Schwarz says.
"The biggest challenge is attitude, though," Bunn says. "Just because nobody's done it before doesn't mean we can't do it. The answers aren't all brand new, but if we can eliminate the bad and implement the good, we can get the job done."
As a partner in Purdue's Dauch Center for the Management of Manufacturing Enterprise in the Krannert School of Management, IR employs Purdue interns, provides scholarships and hires both bachelor's and master's degree Purdue graduates in manufacturing management.
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Leroy B. Schwarz, (765) 494-4510, firstname.lastname@example.org
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