Forecasting the Bottom Line

Oct. 19, 2000
Inventory-management systems help address consumption figures and predict operational costs.


Analyzer reports, generated by actual usage information, take the guesswork out of shop-floor operations. Order-point reports let users view set inventory minimums of each bin location.

By quickly reviewing charted graphical reports, users can determine whether changes to min/max eliminate certain stock-out situations.

Reviewing shop floor reporting on a consistent basis is the key to improving operations. Keeping reports organized in referenced binders allows users to easily review information which, in turn, makes it easier to identify any fluctuations and inconsistencies.

Robert Holmes
WinWare Inc.
Aliso Viejo, Calif.

Ask any plant supervisor, production engineer, or operations employee to list departmental goals for the coming year and, chances are, that person will mention something about increasing automation in an effort to reduce operating costs.

But while cost cutting may be a high priority, many companies continue to operate at higher costs even after adding more automation. The problem? They simply don't have the ability to assess shop-floor productivity and target operational pitfalls inan accurate, timely fashion.

But as managers who do take advantage of new technology, particularly real-time data - collection systems, can attest, having the ability to generate effective reports often means the difference between being able to sidestep potential hazards and continually falling short of financial expectations.

Data Collection
While technologies like ERP and CMMS may be effective at tracking and reporting, a new breed of systems is designed to hone in on individual aspects of operation, like tool crib inventory management and supplier relationships. Some of these systems even use information about actual usage to provide analysis and forecast reporting.

Companies using these systems benefit from being able to predict future usage based on past consumption, which typically results in a tremendous savings, especially when it comes to dealing with the cost of production inventory, also know as the tooling and supplies associated with a particular cost center.

Properly tracking such inventory costs by the cost centers associated with their usage sheds light on bottom-line improvement possibilities.

For example, when a specific job is designated as a cost center, every tool or supply used to complete that job is tracked. Let's say that "Large Engine 8 hp" is the name of a job in process. This job requires a number of tools, supplies, and pieces built by several different departments.

As Large Engine 8 hp completes each stage of production, it requires drill bits, cutting bits, taps, dies, paint, respirators, and several other production inventory items. Understanding the total tooling costs associated with that job, and accurately reporting the cost of production inventory for that job, are the first steps in improving the bottom line.

For that reason, many operations are taking advantage of being able to track the cost of production inventory to such cost centers through applications like the CribMaster Inventory Management System. Such applications allow users to more closely examine usage histories as a way of comparing employees, departments, and other cost centers associated with tool usage in an effort to pinpoint fluctuation.

"Identifying usage figures on the shop floor and effectively reporting them to management is the first step in controlling costs," says Larry Harper, WinWare President and developer of CribMaster. "If used correctly, an effective inventory-management system can identify problem areas and allow you to address them before it's too late."

For example, the program lets users effectively report just how much tooling is needed to fulfill a quota or finish a shift. Likewise, it is also possible to document how much tooling employees are using. With that in mind, if a report shows that the third shift uses $400 more tooling to complete the same quota as the first shift, it is easier to identify the source of the problem and determine why the increase in tool and supply usage is taking place.

Tightening down
By frequently monitoring shop-floor usage reports, managers can watch for the smallest possible usage number and tighten their activity with "red-flag" reports that signal potential problems.

Let's say that in one week the quota was met on the Large Engine 8 hp job. A transaction report generated by cost center Large Engine 8 hp outlines the number of tools and supplies needed to reach quota. Using this figure, it is possible to set "red-flag" amounts to warn managers when they have gone over the amount of tooling used in previous operations to satisfy quotas. Likewise, each time usage decreases, these "red-flag" amounts can be reset which means the shop floor can be running at peak efficiency even sooner.

The future
Undoubtedly, inventory management systems like CribMaster save large organizations millions of dollars by simply allowing them to understand their usage, pinpoint problem areas, and analyze actual usage figures to determine better ways of managing shop-floor activities. But certain applications take this data a step further by placing it into formulas that are able to predict the future based on past figures.

In other words, an inventory analysis report can be printed that actually recommends, based on bin location, the required on-hand inventory.

For example, let's say one bin stores small end mills and that bin is managed by its inventory min/max. The maximum level of that bin is set at 100 and the minimum is set at 25. After a certain amount of time, based on the activity of that bin, users can print an inventory analysis report that examines at the accuracy of the min/max settings.

This usage history determines order leadtime and other EOQ principles, and lets users know that they need to keep on-hand inventory to a minimum of 10 and a maximum of 85. On-hand inventory is then reduced and a great deal of bottom line savings is achieved.

Such reports also allow users to identify periods when bins have experienced stockouts 12 times in the last year and also demonstrate situations where users need to increase minimums to 35 and maximums to 110.

Reporting and tracking total inventory consumption and making recommendations has always challenged purchasing and management personnel. With today's integrated supply and consignment programs, suppliers and manufacturers understand the importance of being able to accurately track and report usage.

The reporting capabilities of the new breed of inventory-management systems give tool rooms all the operations information they need on a consistent and timely basis. By enabling reports to be scheduled, printed, or e-mailed automatically, management can review specific information regarding shop-floor activity any time. These systems can take actual usage history and make recommendations about the future, which lessens the burden on organization planners who ordinarily spend time analyzing that information.

But how will such technological advancements reduce cost? The technology itself may or may not. However, it does provide management and shop-floor attendants the information they need to know how to do their jobs better, faster, and less expensively.

Ideally, assumptions based on individual analysis will become obsolete as large amounts of information are generated. This will virtually eliminate employee errors, making shop-floor reporting one of the most valuable, time-saving planning tools available.

About the Author

Leland Teschler

Lee Teschler served as Editor-in-Chief of Machine Design until 2014. He holds a B.S. Engineering from the University of Michigan; a B.S. Electrical Engineering from the University of Michigan; and an MBA from Cleveland State University. Prior to joining Penton, Lee worked as a Communications design engineer for the U.S. Government.

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