8 hidden costs of material utilization

Nesting every square inch of every sheet may lead to unexpected costs


December 20, 2011


Be sure to properly identify the hidden costs of material utilization to ensure that the gains outweigh the expense.

Your programmer nests parts tightly onto each sheet so that only a sparse skeleton remains. Of course, to create this masterful piece-part puzzle, she nests parts due in a few days next to some due in a few weeks. She chooses parts from orders that are not likely to change, using her knowledge of future production. After cutting, some parts go to deburring, others to bending. Workers then send a few stacks to stock for three weeks. This isn’t a problem, right? The programmer maximized the per-sheet yield. Everything is great because you are saving money.

Or are you?

Profitable manufacturing businesses must vigorously pursue the most efficient utilization of raw material. However, such attempts may have unintended consequences that outweigh savings from better material utilization. Be sure to properly identify the hidden costs of material utilization to ensure that the gains outweigh the expense.

1. Material-saving Initiatives

In many cases, initiatives to monitor and save raw material actually are very expensive. Consider the costs associated with attempts to analyze present and historical material utilization. Without easy access to historical material purchases, inventory, scrap percentages, and job data, it will be very difficult to determine accurate trends and percentages. Also, unless your production is extremely predictable, it is unlikely that having this data will do you any good, as you will not be producing the same jobs.

Before creating a company action team, keep in mind that those appointed to such a task are typically higher-paid staff. At the same time, your employees probably do not have free time to devote to such an initiative, so every minute they spend calculating material utilization is costing you somewhere else. Also, your employees may not have the experience that an industry specialist would have for recommending improvements. They may struggle to be truly objective.

Material utilization can improve with simple awareness. Rather than looking backward to establish a metric, take a snapshot of your current material utilization. Set a companywide goal for increasing yield and reducing waste versus creating an action committee. Allow all employees to suggest improvements. Maintain awareness by posting improvements each month, and congratulate employees whose suggestions make an impact. Doing so will not only increase material utilization inexpensively, but also unite your team.

2. Labor

Many actions to maximize material utilization increase labor costs. For example, if you combine jobs during nesting to yield more from a sheet, those parts have to be sorted back into jobs. The process increases labor for planning, programming, tracking, and sorting.

Hidden labor costs creep up further when nesting future and current jobs together to fill a sheet. There is labor involved in choosing parts from future orders that are not likely to change. Once produced, the parts must be sorted and moved to a storage location. And don’t forget about the tasks related to updating the work order with the parts that are completed. Then, when the remainder of the job is cut, labor is required to track and manage the completed parts in inventory, to check that all parts are accounted for, and then to reunite the parts for the next stage of manufacturing, such as bending or welding.

This heavily managed process requires a significant time investment from all who plan, track, manage, and produce orders. It introduces the risk of overproduction as well as incomplete orders. Without a comprehensive management tool, your attempt to increase material utilization may cause your team to spend a significant amount of time per day looking for parts.

3. Remnants

Storing and using remnants seems like an obvious way to improve material utilization. However, the hidden costs of remnants can be significant. Creating and storing a sheet as a remnant requires the labor to load and unload the sheet from the machine, label it, and record its stored location. Then, for the remnant to be utilized in a timely manner, a system must be in place to suggest the remnant over a piece of stock.

If the system continually suggests the shop use stock instead of remnants, the remnants will pile up and become more unmanageable each day. Attempting to increase material utilization through remnants can increase labor not only for managing the remnants themselves, but also for inventory accounting. If your company tracks customer-owned material or manages metal certifications, getting your parts closer together on the sheet only to create a remnant could have hidden costs.

4. Incomplete Solution

Often companies purchase software to solve their most obvious material utilization problems without understanding the impact of nonintegrated software systems. This leads to frustration as solving part of the problem usually makes other parts of the problem worse. By focusing too narrowly on the material itself and not the processes surrounding it, managers often realize that, for the system to be useful, it will have to be integrated with other systems, sometimes at great expense. Otherwise, the planned gain is left unrecognized.

A common example is purchasing nesting software to increase material utilization without considering how it will interact with the other systems that manage your stock inventory. If you have customer-owned inventory, or are a tiered supplier, you probably have a system for tracking and reporting material usage to your customer or OEM. You might also have a purchasing system for ordering material from your suppliers or keeping a minimum stock. You definitely track and monitor your stock inventory in your accounting package, if not in a larger business system. If your nesting software cannot interact in real time with those systems, you cannot effectively increase material utilization, and worse, the effectiveness of each system is diminished.

Not having a true representation of inventory for programming might be overcome by nesting on standard sizes or assumed stock, then assigning specific stock after the nest is created, but this requires a lot of rework. A planner might assign material from the primary inventory system to the job before sending it to the programmer—but this defeats the purpose of the optimization process, which is the very reason you purchased nesting software. In both cases, you are re-entering data and passing information from one process to the next, usually on a printed piece of paper, just hoping that there isn’t a typo.

When a nesting package is not linked in real time to your inventory system, you must manage the lag in information between the two systems. This is especially time-consuming when dealing with a scrapped part or missing piece of material. The results of the cutting process, including any remnants created or rerun parts, are not automatically reported back to your inventory system, creating more data to track and enter. The lag between systems, often created when one system is waiting for manual data entry, makes it impossible to know your actual inventory. This is only compounded when you have processes that require different materials, such as beams, tubes, and barstock.

Evaluate your entire process, including the people and procedures that need to share information, and then choose software tools designed to work as part of a whole solution. Doing so will increase efficiency and eliminate the costs associated with non-value-added work.

5. Poor Part Mix

Most companies optimize material consumption for cutting but rely too heavily on material utilization percentages as an indicator. The best nesting software can’t create a better part mix when it is geometrically impossible. If you cut mostly large parts, nesting alone will not help you increase material utilization. You instead need to purchase material in sizes that will create the least scrap.

What if you buy fewer sheet sizes in larger quantities? True, you may save on raw material costs, but you should weigh these savings against increased costs elsewhere. The most obvious, of course, is fewer inventory turns, because the shop buys more than it needs at once.

Also consider the less obvious costs. Poor raw material purchasing strategies add significant variability, because they complicate part flow. Poorly sized sheets force you to manage remnants or perhaps nest parts that aren’t needed immediately, just to use the extra space on the sheet. In this case, working with a metal supplier to deliver the right sheet sizes for your product mix probably would increase the raw material price, but you may save much more, because you’ve reduced shop floor variability. In other words, you’ve made part flow simpler.

6. Poor Design

The labor cost associated with an overdesigned part, or a part made of several material gauges, is obvious. The cost such a part has on material utilization is less obvious. You must not only purchase and stock more materials, but also track the materials and effectively communicate when they are to be used.

If you work at an OEM, design your parts for the best material utilization. If you work at a fabricator that does not design the parts, talk with your customers and suggest design modifications that will allow you to pass on cost savings.

7. Poor Planning

When people think of saving money through planning, they usually think of time and not material. But effectively planning will have a more critical impact on material utilization than nearly anything else. In fact, expecting any software used later in your process, like nesting software, to improve material utilization is unrealistic without careful planning.

To truly drive down scrap rates, you must know future demand and required inventory, and have reliable, real-time oversight of machine capacity at the planning level. Proper planning allows you to purchase materials in sizes and quantities that best suit your workload without remnant creation, as well as provides better part mixes for nesting.

Let’s be realistic: A customer with an order wins. You are going to take the job, but how can you plan a last-minute job in a manner that does not waste material? The answer is having a flexible system that unites your demand, inventory, programming, and machine capacity.

8. Poor Communication

Finally, recognize the impact of poor communication on material utilization. There are the obvious communication challenges, such as last-minute part changes or cancellations that result in scrapped parts. But some may take less obvious measures to work around known communication problems, like making extra parts in case a part is damaged on secondary shifts.

And there are the hard-to-quantify costs, such as programmers not knowing about more parts in the job queue that could complete a nest or finish a job. Consider, too, how often people leave their desks to communicate part locations and changes, or when operators leave the shop floor to notify someone of unavailable material for a certain job. Many companies have huge initiatives to increase material utilization, but can never quite put their finger on how poor communication works against their efforts.

Uncovering the Complete Picture

Is material utilization your real problem? Analysis of your work flow, typical job type, and labor is of the utmost importance for proper and profitable material utilization. Look at your entire process rather than focus just on the material itself. Doing so will allow you to introduce not a stopgap solution, but instead a long-term, comprehensive improvement program.

Adria Iles

Vice President
Lantek Systems Inc.
Mason Technical Center
5155 Financial Way
Mason, OH 45040
Phone: 903-258-9422

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