Automated Scheduling Key to Better ROI

Move to JIT manufacturing can shift costs elsewhere without an integrated strategy
Carl Maerz, Albat + Wirsam North America
June 1, 2009
FEATURE ARTICLE | Operations

Today, many window and door manufacturers find themselves in survival mode. To combat a decrease in demand, some are frantically trying to increase their sales, while others are searching for ways to augment profitability.

The most successful companies are not looking to boost sales alone, they are also investing in proven cost cutting methods. Reducing overhead is an obvious path toward increasing profits. It is simple arithmetic: sales minus costs equal profit. So why do so many manufacturers continue to hold off on cutting costs? Although the reasons vary, they often include inflexible management or the unwillingness and/or inability to make necessary investments. Some companies resist out of frustration. While they are seriously committed to reducing costs, their previous efforts have not produced the gains they had hoped for.

Often manufacturers implement cost-slashing strategies and never realize significant savings. Despite large investments they discover that instead of removing costs from their income statement, they have simply shifted them from one area to another. However, considerable savings can be achieved if the company fully understands the strategy it is implementing and has the proper infrastructure in place to do so.

Window and door companies are approached daily by machine suppliers and software vendors claiming to have the answer to all their cost and inefficiency dilemmas. Terms like "streamlining production" and "just-in-time manufacturing" are used synonymously when discussing cost-cutting methods. Failure to differentiate between these various strategies, however, can result in poor decisions by management in their attempt to combat costs.

The truth about JIT
Perhaps one of the most important yet misunderstood strategies of reducing costs for window and door producers has been JIT manufacturing. Although the importance of cutting down on inventories is known in the industry, it is often coupled with higher administration costs, which offset the savings. Because some manufactures are not fully aware of what goes into effective JIT processes, they continue to implement labor-intensive methods. But by fully understanding the necessary processes to achieve JIT manufacturing, window and door companies can start seeing actual savings.

JIT manufacturing is the strategy of reducing inventory and its associated costs. It aims at decreasing the two types of inventory that constitute production: materials (inputs) and finished goods (outputs). This is achieved by having materials on hand just-in-time for production and finished goods at the dock just-in-time for the scheduled shipping date.

There are many immediate benefits to JIT. Cash flow is improved due to a smaller capital investment in inventory. With less inventory on hand, less storage space is needed, which, in turn, will free up room to increase capacity for current products or a new window or door line. Further benefits include lower record keeping and materials handling costs, as well as reduction in tax obligations, scrap, and obsolescence.

Two kinds of inventory
Inputs for production can be grouped into two different categories: custom and stock inventory. Custom inventory is most often the glass required for glazing. This can include tempered or specialty glass ordered from a supplier, or glass which is produced in house and ordered specially for each window or door. Stock inventory includes the profiles, hardware, screens, etc. This type of inventory is often kept on hand for general production and refilled when necessary. Production outputs are simply the finished windows and doors, ready to be shipped to the customer.

Before a JIT program can be implemented, a company must put its operations in order; in other words, become organized. Without the free flow of information among departments and a centralized database, a JIT strategy will simply not work. Order entry, scheduling, and purchasing departments must work together and exchange information quickly. To achieve the synchronization of departments and promote transparency in the organization, many window and door manufacturers have implemented integrated ERP solutions. Cleaning up the organization with integrated software allows the company to have a clear picture of incoming orders and react accordingly.

Not all ERP is created equal
Although the benefits of an integrated ERP solution permeate through the entire organization, not all ERP systems are created to allow for JIT manufacturing. ERP software for the window and door industry typically provides the framework for JIT, but some programs may not eliminate aditional labor-intensive processes. They are not successful because they fail to save the company money. Rather, they shift costs from holding inventory to the scheduling and purchasing departments.

To understand why many integrated ERP software solutions do not successfully implement JIT, the outputs and inputs to production should be evaluated. Beginning with inputs, the purchasing departments need accurate information from scheduling as to when the materials are needed for production. With this information, custom glass is ordered and should arrive just before production. Stock inventory is more difficult to control. Purchasing needs to know not only the amount of inventory on hand, but also the projected levels of inventory at any point in the future. This way, they are able to accurately reduce the amount of safety stock on hand.

The scheduling department is responsible for setting the start date of production to align exactly with the shipping routes to prevent finished goods inventory. This requires a close look at projected inventory levels, scheduled capacity, trucking routes, and production times. Rather than "getting close," they must invest time into looking at all elements together. This process inevitably requires more employees in scheduling and, consequently, higher administrative costs. If the process remains manual, scheduling errors could result.

In addition to knowing the framework needed for JIT, as well as the added emphasis on administrative tasks, it is important to understand that it is possible to automate purchasing and
scheduling in a company. By automating these departments, a company can avoid additional costs in administration and therefore realize the savings of JIT manufacturing. The difference lies in asking the right questions before implementing an ERP system.

Automated scheduling
There are many different providers of ERP systems to the window and door industry. The software they offer is similar in a number of ways; for example, integrating different areas of the business or simplifying order entry. One key difference among these products, however, is how they schedule orders and handle purchasing. Some perform these functions automatically—or have modules that do—and others leave those tasks to company personnel.

Those software packages that do not perform these functions generally provide the users with scheduling tools, so company personnel are able to create schedules and production batches. The two elements that are not included are automatic scheduling and automatic reference to projected inventory levels. Without these automated functions, the scheduling department must search through myriads of information to plan production accurately to the delivery date. This type of software also relies on actual levels of inventory only and provides users with reorder points. This method alone will not cut down safety stock, so the purchasing department must reference existing jobs manually in the system and estimate future material needs for purchase orders.

ERP systems that perform scheduling automatically at order entry while referencing projected inventory levels offer significant benefits. They allow a company to significantly cut down on purchasing and scheduling, while realizing the savings inherent to JIT manufacturing. At order entry, an order is checked against a delivery date, capacity, and projected inventory levels, and feasibility is determined, within seconds. Instead of providing scheduling tools, the process is fully automatic and runs immediately after an order is entered. It not only significantly cuts down on administration costs associated with JIT manufacturing, but also boosts confidence in the system, eliminating manual errors and further reducing inventory levels. Automatic purchase orders are also made for both custom and stock inventory, accurately and based on actual and reserved stock levels.

Fig.1

The difference between automating these functions and relying on company personnel to them can be the difference between reaping the benefits of JIT and shifting costs elsewhere. To demonstrate this idea, Fig. 1 shows the totals for holding inventory, production, and administrative costs related to scheduling and purchasing. The first bar represents a manufacturer that has not implemented JIT processing. Costs associated with excess inventory are high and administrative costs are moderate.
The second bar represents manual software and JIT manufacturing. The integrated solution allows inventory to be cut down significantly, but scheduling and purchasing costs can rise, as they are still a manual process. Finally, the third bar represents automatic software. Inventory levels are further reduced due to quicker and more accurate scheduling. And because scheduling and purchasing departments are automated, they cost much less. In the end, this strategy makes better financial sense in today’s weak economy, and tomorrow’s improving one.
 

Carl Maerz is a consultant with Albat+Wirsam North America for its Cantor product. A division of the Glaston Corp., based in Kirkland, Wash., the company provides manufacturing software to the window manufacturing and flat glass industries worldwide. Maerz can be reached by calling 425/827-2400. More information on the company’s software is available at www.a-w.de.