Prior to September 1, 1997, Harry Moore’s problem was cutting tools.

Drill bits, end mills, broaches, taps — the stuff critical to the manufacturing operations at Smith & Nephew, a producer of orthopedic implants and trauma products.

As the senior purchasing agent for the corporation’s plant in Memphis, Tenn., Moore was spending $3.5 million a year on tooling, and it was eating him alive.

Tradition stood in the way of progress, and a good night of sleep.

In the tool crib, minimum and maximum usage levels were created by guesswork rather than data and communication.

“The old min/max system was opening a drawer, looking inside and saying, ‘I think we need some of this, some of that,’” Moore says. “We were living in the dark ages.”

The drawers only told half the story. Fed up with waiting in line at the crib window, operators requested more than they needed and squirreled the excess in tool boxes. Sometimes, the tools were used; other times, they weren’t.

In his office, Moore rummaged through stacks of requisitions. For each requisition, big or small, he called as many as 20 vendors for pricing information.

Frequently, the purchase was unnecessary. Operators requested high-priced, special tooling and — after Moore cut the check — changed their mind or forgot to pick up the item. Unable to return such tooling, it collected dust in the crib.

By August 1997, tooling inventory topped $1.2 million, and $250,000 of it collected serious dust. Those figures didn’t include personal inventory stowed around the plant.

“We were spending more than we needed and holding more than we needed,” Moore says.

Two years later, Harry Moore looks well-rested. He smiles about the past because it bears no resemblance to the present.

There is no inventory to worry about, and the annual tooling spend is a more manageable $3 million.

What happened?  Four things:

1) Integrated supply
2) Inventory elimination
3) Employee empowerment and accountability
4) Point-of-use tooling

Cutting the vendor base to one
During the dark days of 1996 and early ’97, Moore knew a brighter day was on the horizon.

In February 1996, Smith & Nephew began exploring integrated supply as a way to cut costs and address the growing inventory situation.

“We had asked the company many times for help (more bodies, a little technology), but we could never prove we needed it,” says Moore. “After a while, I think they realized the problems were costing the company a lot of money.”

At a conservative 6 percent carrying cost, Smith & Nephew paid $72,000 a year to store $1.2 million of tooling inventory.

It cost at least $500 for every hour a production line was shut down because of a stockout or unscheduled stoppage.

It cost purchasing personnel time that could be used on more strategic matters.

Things added up, and the answer was integrated supply.

“We had several key vendors that we worked extremely well with,” says Moore. “We gave each the opportunity to come in and give us a presentation.”

The winner, Lewis Supply Company, received a three-year contract to run the crib and be the primary supplier of MRO goods.

“The buying power (of an integrated supplier) alone makes it a good deal,” says Moore. “They aren’t buying at the ‘10’ price break; they’re buying at the ‘200’ price break. That saves us money.”

And Smith & Nephew pays only when an item is dispensed to an employee.

“They stock it for us,” he says. “Instead of us paying $2,000 for five of something, we’re only paying $400 for the one we’re currently using.”

The integrator holds onto the other four until they’re needed.

Zero inventory
Vendor-managed inventory occurred after Smith & Nephew worked with its integrator to eliminate its $1.2 million tooling inventory.

In September 1997, Lewis Supply purchased $950,000 worth of inventory (anything that had any movement). The distributor sold inventory back to the plant upon usage, or to its other customers.

The remaining $250,000 of inventory was obsolete, old and/or useless. Smith & Nephew got rid of it any way it could. The plant found uses for some items. Local technical schools took what they needed. The rest was scrapped.

Along with handling inventory, the integrator also began assembling a tool usage history. Smith & Nephew never had a way to assemble and retain such information. Guesswork and manual counting led to stockouts and line stoppages.

A bar-coding system, Prophet 21 inventory management software and FoxPro reporting software created usage data that could be dissected (by employee, work team, building, time interval, etc.). The data established appropriate min/max levels.

A product of teamwork
Armed with data and a clean slate, Smith & Nephew worked to eliminate bad purchases and make employees more accountable.

The result was a team program unveiled in 1997. Unlike a traditional department-based structure, Smith & Nephew organized its teams by product line.

For instance, all jobs related to the production of bone screws are a part of the bone screws team.

Teams receive regular bonuses based on performance aligned to productivity, quality and budgetary benchmarks. Bonuses can add several thousand dollars a year to an employee’s paycheck.

“We are trying to build ownership,” says Roy Smith, vice president of operations. “We want them to focus on the big picture, instead of one particular part of the manufacturing process. We are trying to create an environment where performance is rewarded at the group level.”

To meet those goals, teams and individuals pay closer attention to costs. If an operator requests a high-priced special tool, he or she better use it because the purchase is linked to the team’s cost per unit produced.

The operator who used to stow excess inventory in his tool box thinks twice about it now. When he or she takes possession, the cost is linked to the team.

“Teams get a weekly report on what they use, who used it, how many they took,” says Moore. “Because they control their own destiny as far as the money they make, people on the lines take a closer look. They ask each other, ‘Why take six when you only need two?’”

Shout about POUTS
Accountability, productivity and cost control are the basis of the team approach, and of an idea that tied up any lingering problems related to tooling.

Time spent waiting at or walking to the crib isn’t cost-effective.

“If you have to walk 200 feet to the tool crib, it’s probably going to take you 15 minutes because you’re going to stop and see JoJo, or talk fishing with Fred, and then wait four or five minutes at the crib window. If the line is long, add another five minutes. If you’re walking from one building to another, it’s even longer.

“We have guys making $15 to $20 per hour. A 20-minute trip costs the company $5 to $7. If they have to stop production to make a 20-minute crib trip, that’s a few hundred dollars.”

Moore saw point-of-use tool dispensing units as the solution, but price was the sticking point. That eliminated automated dispensers.

“For 10 units around the plant, the quote was $300,000 for the dispensers, software and network,” he says. “It was astronomical.”

The solution was close at hand.

The plant purchased carousels to house the components used for finished products. The old storage system, a fleet of Stanley Vidmar cabinets, was no longer needed.

The cabinets were quickly scooped up and converted to POUTS, point-of-use tooling storage.

“Instead of spending $300,000, we spent $100, and that was for the locks,” says Moore.

Even if bought new, the savings would be great. Such cabinets retail for around $1,500.

Product teams studied tool usage data and worked with the integrator to develop cabinet stocking according to their line’s needs.

No two cabinets are alike. One line might use special tooling. Some might want a drawer of abrasives or safety products.

Cabinet makeup can change from week to week depending on the production schedule. Communication between team members and the distributor’s roving inventory coordinator makes sure the bases are covered.

“The guys love ’em,” says bone screws team leader Charlie Hines. “They’re convenient. It takes a minute to get what you need instead of 20. And we always have it in stock. We never run out.”

The only presumed minuses with the cabinets are security and accountability. An automated dispensing unit provides no such worries, but what about this arrangement? The plant’s team- and incentive-based systems quelled those concerns.

“Each person in our team has a key to the cabinet,” says Hines. “They are accountable for everything they take out. They write it down on a log sheet.”

Sheets are collected weekly and numbers compared to bar code data. If discrepancies arise, teams are billed for missing stock.

“In our case, the honor system works,” says Moore.

So well, in fact, that POUTS will spring up in additional areas of the plant, thus keeping Moore and the rest of Smith & Nephew smiling.

This article appeared in the October/November 1999 issue of MRO Today magazine.  Copyright 1999.