International Switchgear turns onto MRO cost control
By William Atkinson -- Purchasing, 10/15/2009 2:00:00 AM
As more companies look to manage their costs, the indirect and MRO spend areas are getting a much closer look than ever before. While the total dollar amount may not be as large as the direct materials spend, the lack of consolidation can provide good opportunity for spend management ROI.
One company reaping the benefits of MRO controls is Alpharetta, Ga.-based Intelligent Switchgear Organization (ISO), a joint venture between Caterpillar and Eaton Corp. that manufactures, sells, and services electric power generation equipment. Prior to implementing its control program, ISO worked with Fastenal, a distributor of fastenings and MRO supplies. Under the plan at the time, ISO had open bins for MRO items that Fastenal restocked each week and then invoiced ISO for. The open bins allowed virtually any and all employees to take free issue items as they wished.
"From what we saw, they did just that, and there was very little control," reports J. David Lister, purchasing manager. Items included safety glasses, ear plugs, side shields, drill bits, arm sleeves, box cutters and screwdrivers.
ISO decided that it wanted to determine what if any cost reductions it could receive by actually tracking usage of MRO items down to the individual employee. Fastenal had a solution that seemed to be able to do just that called SmartStores. These are vending machines manufactured by Fastenal that the company leases to its customers. "They are like food vending machines, except that they are stocked with the operational items that we use the most," reports Lister.
ISO implemented SmartStores in early 2009 as a way to better monitor operational supplies. It currently has three SmartStores. Two are for small items, and one is for larger tools. There are two choices for safety glasses. All of the other items have one choice only. When employees need a particular item in one of the machines, they scan their ID badges on the card reader that is attached to the machine. The machine reads the card and compares the employee listing. Certain items in the machines cannot be issued to certain individuals. For example, team leaders can get the major tools, but the general floor personnel cannot get these types of items from the machine. In addition, some employees are limited to a certain number of each item each week.
The machine reads the ID card and records either a non-issue for the item (if the employee is not authorized to get the item or is attempting to exceed the maximum number allowed) or an issue of the item to the person. The cost of the item is recorded to show to both the employee and the employee's cost center or project. "We are a job shop, and all direct costs for a job are recorded," explains Lister.
Fastenal restocks the machines on a regular basis and then invoices ISO. Lister receives a spreadsheet for items that were issued by the machines, allowing him to see what, when, and to whom items were issued, as well as the cost per item, and the total billing.
When the machines were first introduced, it was important to make each employee aware that, when they scanned their cards, the SmartStore recorded their names. "We had problems in the past with lost ID badges and other people scanning in for someone else," he explains. "This was a problem which we were able to correct when employees found out we could see who got what, and when. We have now experienced a marked reduction in lost ID badges."
In terms of results, there is much better trackability. Safety glasses, ear plugs, side shields, drill bits, arm sleeves, box cutters, and screwdrivers now show direct charges to individuals and specific projects that were not trackable in the past, according to Lister.
In addition, the usage of the items that are now in the machines has been reduced by 30% in some cases. "In other cases, such as gloves, usage has dropped 70%," he states. "The cost savings from the reduction in gloves alone will be enough to pay for the cost of operating the SmartStores machines in about a year and a quarter." He adds that the cost reductions realized from the other items in the machines are "gravy."
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