Metal fabricator revamps raw material purchasing strategy

Supply chain transparency fosters efficiency at General Sheet Metal Works

THE FABRICATOR® JULY 2012

July 16, 2012

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General Sheet Metal Works revamped the way it handles raw material purchases. Floor personnel now release specific orders, while the purchasing department communicates with suppliers about future demand and negotiates contracts. Most important, the company order just what it needs--and no more.

Metal fabricator revamps raw material purchasing strategy - TheFabricator.com

Figure 1: Using a computer application with a direct connection to the metal service center, a laser cutting supervisor orders material for the next day’s work.

Art Harrison’s job is a bit different from what it was six years ago. He hasn’t moved to another company. Even his job title, materials manager, hasn’t changed. What has changed, though, is how his employer manages raw stock inventory.

Six years ago General Sheet Metal Works (GSMW) in South Bend, Ind., ordered material like any contract metal fabricator. Harrison, as his title suggests, purchased materials. If the schedule stated that the shop needed 20,000 pounds of 10-gauge carbon steel for the next week, he ordered 20,000 lbs.

The company’s 10 laser cutting machines, one punch press, and one plasma/punch combination machine churned through plenty of material. But GSMW processed thousands of different jobs and thousands of different part numbers requiring a variety of materials, so it was highly unlikely that the full 20,000 lbs. of 10-ga. was needed immediately. The metal usually sat for the better part of a week, sometimes longer. The same occurred for other carbon steel gauges as well as stainless steel and aluminum. The problem persisted for coil stock for the fabricator’s stamping operations too.

When the manufacturer began implementing its continuous improvement efforts three years ago, managers rethought their raw stock strategy, when it came in, and who pulled the trigger for orders. Today Harrison still manages purchasing contracts and ensures suppliers have current sales forecast information, but he no longer places individual order releases. Instead, floor supervisors monitor the raw stock and send orders for metal required (see Figure 1) several times a week. Suppliers ship smaller batches of metal, but more frequently. Most important, the fabricator orders just what it needs for the next day or so, no more and no less.

Meeting Increased Demand

Over the decades the fabricator grew on the back of the lawn and garden sector. By 2008 lawn care equipment customers comprised 91 percent of company sales. The next year revenue went the way of the housing market; company sales fell by more than 40 percent.

Layoffs ensued, but so did GSMW’s lean initiatives. Today the company has diversified its customer mix. By 2011, even though volume had increased, only a little more than 70 percent of sales came from the lawn and garden sector. The company has growing contracts in the photovoltaic solar industry, producing the metal frames and assemblies that enable solar panels to rotate. Recreational, towing equipment, and other specialty vehicle OEMs count among GSMW’s new customers.

One of the most noticeable changes at GSMW, though, is its raw stock inventory. Stock is color-coded and strategically stacked for quick retrieval (see Figure 2). The company now fits a greater variety of small-quantity stock that reflects the contract fabricator’s immediate demand. If a sheet or coil sits within the raw stock area, it will be used very soon.

Although the strategy has increased inventory turnover—from an average of 12 to about 15.5 a year—this wasn’t really why GSMW revamped its raw stock area. During some months the company churns through metal at a rate that, if continued throughout the year, would produce more than 20 inventory turns. Then again, during other months the company fabricates more products involving multiple forming, joining, and assembly processes, and so may not be produced so quickly.

GSMW managers track average inventory turnover as an important benchmark, but it’s not the only one that matters. Most critical, in fact, are time and space. As Harrison explained, several years ago workers spent too much time on raw stock material hunts. Fork truck drivers drove through a juggernaut of metal to retrieve specific sheets. Too often sheets were scratched or otherwise damaged, or simply couldn’t be found when needed. All of this represented some obvious time and material wastes. Those sheet metal stacks also consumed valuable real estate that the shop couldn’t fill with productive equipment.

This changed with improvement initiatives. Workers engaged in 5S and reduced changeover times. They organized tools near press brakes and used keyslotting on die base plates for quick die changeover at the stamping presses. All this reduced batch sizes for efficient flow. Harrison estimated that work-in-process has been reduced by more than half.

Metal fabricator revamps raw material purchasing strategy - TheFabricator.com

Figure 2: Raw stock is organized and color-coded, so workers can find and retrieve them quickly for laser cutting and punching.

Supply Chain Transparency

As National Sales Manager Tom Sesterhenn explained, the fabricator receives a weekly sales forecast from its largest client. “It’s a snapshot, and it’s constantly changing,” he said.

To develop and update its own forecast, GSMW managers complement the information from customer forecasts with some basic market research of their own. They comb through 10-K and stock analyst reports. Sesterhenn added that such independent research is vital to GSMW’s raw stock strategy, because not every customer provides detailed sales forecasts or frequent updates.

Every Tuesday GSMW uploads its own updated sales forecast, generated by its Epicor enterprise resource planning (ERP) software, to a secure portion of the fabricator’s website. Metal service center representatives then analyze the forecast, call if they need clarification (say, if they catch a major forecast change for a specific material type), then work with the mills (which often need two- to three-month lead-times) to ensure they have enough stock to meet the fabricator’s demand.

“We need to be looking three months ahead constantly to make sure we have the right amount of steel,” said Michael Beebe, sales representative at Steel Warehouse’s South Bend location, which provides most of GSMW’s coil stock. “Those forecasts are critical. For us, it’s all about having the right steel at the right time. And [GSMW has] helped in that regard, with their sales forecast on their website.”

He added that this level of supply chain transparency is much more efficient than the typical phone call and informal verbal discussions about what orders a fabrication shop manager sees on the horizon. “We can have a discussion today, but the next week it may change,” Beebe said. “With weekly changes to the forecast on General Sheet’s website, we can tackle a problem much faster than if we just relied on verbal discussions.”

As a next step, Beebe said, the two companies hope to share inventory tracking numbers. “They are adding our tracking numbers onto our part numbers,” he said, explaining that in the future such a system will help ease the flow of information between the two companies.

Close collaboration between service center and fabricator has occurred for decades. What’s changing is the frequency of communication, aided by software—not only by GSMW’s ERP package, but also by programs offered by the service center. Chicago-based Central Steel & Wire, for instance, has its eCOIN, or electronic customized order inquiry network, and GSMW has several computer terminals on its shop floor connected directly to the eCOIN system (see Figure 1).

“This provides a direct link with our inventory system internally,” said Jay Springman, territory sales manager at Central Steel. “It allows our customers to place orders or inquiries electronically. Our computer then automatically generates either a quote or order for material.”

Supervisors in the laser and punch press areas monitor stock levels on the floor, then, after a few clicks at the computer, order to replenish as needed. Like GSMW’s other suppliers, Central Steel can access GSMW’s sales forecast. Working off that, Central and GSMW develop a blanket order for a certain product or family of products. So when supervisors release orders for material, “they’re basically pulling off material that’s already sitting on our floor, cut and ready to ship,” Springman said.

This isn’t a straightforward, kanban-type replenishment in which metal is reordered as soon as stock is depleted below a certain level. Because orders and demanded material types vary over time, certain metal may not be needed for days or even weeks. If metal is depleted below a certain level, a supervisor may not immediately reorder.

Metal fabricator revamps raw material purchasing strategy - TheFabricator.com

Figure 3: Today the company maintains limited coil stock inventory. Material is used shortly after delivery. Several years ago, coils often sat in inventory for extended periods.

As sources explained, people on the floor know what’s going on at the moment. They’re closest to the metal, literally and figuratively. Meanwhile, Harrison and the front office team manage the long-term outlook and ensure suppliers have the information they need to meet GSMW’s future demand.

From Just-in-Case to Just-in-Time

A similar change has occurred for coil stock (see Figure 3). Before the transition, Harrison ordered a coil based on a job’s final due date, when GSMW needed to deliver the product to its customer. He worked backward from that due date and purchased material accordingly. At least that was the theory. In practice, coil orders often were placed farther ahead than they needed to be.

“Let’s say they needed the steel in June to produce parts,” Beebe said. “They would add extra time in the forecast, and it would show they needed the steel in May. So we’d produce the steel and have it ready. [The amount of] our ready-to-ship material actually grew for them, because we were producing way ahead of what they actually needed.”

Instead of just-in-time material delivery, this arrangement was “just-in-case.”

“We started to see a pattern,” Harrison said. “We would have material before we needed it, and space was becoming an issue.”

The company overcame the problem with a simple order-and-release program. Steel Warehouse sends daily on-hand-inventory reports to GSMW, and GSMW updates its own sales forecast every Tuesday—again, posting it on its website. The fabricator orders material and Steel Warehouse holds those items until they receive an e-mail from Harrison to release the order. Steel Warehouse then delivers stock.

“This helped us reduce our inventory, and also gave us a more accurate forecast to work with, to make sure we have the steel we need during the right month,” Beebe said.

About Time

Price is and always will be important. Managers use a mix of contract and spot buys to lock in competitive prices. But quick delivery is paramount, especially to accommodate for last-minute, unexpected demand. No matter how quick and efficient setups and material flow become at GSMW, none of it makes much difference if material isn’t on hand to start the job on schedule.

This philosophy guides purchasing decisions. For instance, many of Steel Warehouse’s other customers receive material in the morning. GSMW receives its stock during the second shift, when more Steel Warehouse trucks are available. “This allows us to accommodate other customers in the morning and ship to them in the afternoon,” Beebe said. “Also, if they have a hot order, we can finish it in the morning and deliver it that afternoon.”

GSMW is no garage shop. The company buys about $14 million annually from its top two metal suppliers alone. By 2010 sales had rebounded nearly to prerecession levels, topping $30 million. In 2011 revenue reached $40 million, and this year managers expect sales to reach $48 million. That’s dramatic growth, especially for a 187-employee contract fabricator.

Metal fabricator revamps raw material purchasing strategy - TheFabricator.com

Figure 4: Customers have increased order volumes during the economic upturn. If the trend continues, GSMW may move more parts to the stamping division.

Reducing raw stock space has given GSMW options. Managers now can fill that space with productive equipment. Over the past three years the company installed a laser cutting machine with an automated load/unload table as well as an 800-ton stamping press; before the raw material reorganization, both machines wouldn’t have fit on the floor. In the years to come, other investments may include material handling towers for laser cutting and quick-coil-change systems for stamping. In effect, the fabricator transformed storage space into productive space.

This couldn’t have come at a better time. Order volumes have increased with the economic upturn; so if tooling development costs aren’t excessive (the shop has its own tooling department), managers might consider moving some laser cutting work to the stamping area (see Figure 4). At one time, only one of the company’s stamping presses was set up to run coil. Now, out of 14 mechanical presses, four process coil for longer runs. Again, it’s about part velocity. Lasers require no tooling and have minimal setup, but they still can’t churn out parts faster than a bank of mechanical presses.

In contract fabrication, raw stock can be like insurance—with enough of it, the company can respond to unexpected demand. It also can be a liability, tying up cash and floor space. Through strategic racking, continual communication with metal suppliers, and just-in-time ordering, shop managers at GSMW said they’ve struck a good balance between both.

Irish and Studebakers

College football fans know South Bend, Ind., for its Fighting Irish. Car buffs know the town as the one-time home of the Studebaker. General Sheet Metal Works has roots in both.

In 1922 the son of a Norwegian immigrant named H.P. Axelberg, grandfather of John Axelberg, the current company president, launched GSMW as a sheet metal industrial manufacturer serving Studebaker and the University of Notre Dame. During its early days GSMW built paint booths, dust collectors, and air handling systems for the Studebaker assembly plants. It also made metal roofing and ventilation systems for the University of Notre Dame. For one project, GSMW fabricators replaced the gold leaf dome on the school’s administration building.

“During the 1930s and 1940s, with the Great Depression, the company branched out more,” said Tom Sesterhenn, national sales manager. “The company took part in the building of local schools and really the building up of the local community.”

By the 1950s, a separate division within GSMW was launched—a five-person manufacturing team that focused on metal component manufacturing. It was then the shop began supplying piece parts to companies like Wheel Horse, one of the pioneers of tractor lawn mowers. (Wheel Horse was sold to American Motors in the 1970s and then, in 1986, to The Toro Co., a major customer to this day.)

That division established the company’s piece-part manufacturing niche from the 1950s onward. “It was really a turning point for us,” Sesterhenn said. “And, of course, we grew considerably from there.”

Metal fabricator revamps raw material purchasing strategy - TheFabricator.com



FMA Communications Inc.

Tim Heston

Senior Editor
FMA Communications Inc.
833 Featherstone Road
Rockford, IL 61107
Phone: 815-381-1314

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The FABRICATOR® is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1971. Print subscriptions are free to qualified persons in North America involved in metal forming and fabricating.

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