March 2008 Edition
managing for tomorrow
Performance-based strategies work in tooling management
By Thomas Bierma, Illinois State University,
and Dan Marsch, Illinois Waste Management and Research Center
HN Automotive Inc. in Effingham, IL, and Haldex Hydraulics
Corporation in Rockford, IL, couldn't be more different. HNAI produces a couple
of dozen products, such as suspension components for the automotive industry, on
dedicated production lines. Haldex produces thousands of different products for
hydraulic systems, in varying volumes, using constantly shifting production
processes.
Yet each plant has created an extremely
successful partnership with a Tier I tooling management company.
Tooling management/integrated supply has received
its share of criticism. Some critics claim that it restricts
competition, depletes the plant's tooling expertise, and turns over
key business decisions to outsiders. Much of the criticism stems
from failed programs in which initial cost savings were not followed
by similar savings in subsequent years. The experience at HNAI and
Haldex suggests that programs with the right controls and incentives
which we call performance-based tooling management can be very
successful.
Tooling management
HNAI Automotive has a history of commitment to
quality and continuous improvement. As a result, sales have grown
over 50 percent in the last three years and HNAI currently has
approximately 120 employees at its 130,000sq-ft facility. In 2003,
HNAI recognized that to make significant progress in improving
machining operations and holding down costs, it needed more than
just good tooling suppliers. It needed a tooling technology partner
that would share both the risks and the rewards.
HNAI negotiated a unique tooling management
agreement with one of its tooling suppliers, Decatur Custom Tool
Inc. of Illinois. DCT had established tooling management programs
with other facilities.
Haldex Hydraulics performs manufacturing and
assembly of hydraulic systems at its 125,000sq-ft plant, employing
about 500. Haldex began an integrated supply program in 1992 with
Engman-Taylor Co. of Menomonee Falls, WI. ETCO has served similar
programs since 1987, primarily in Wisconsin, Illinois, and Iowa. In
2000, management of the program shifted from purchasing to
manufacturing engineering, signifying a greater focus on production,
budgeting, and cash flow management.
At Haldex, inventory dropped from $800,000 to $250,000 in the first 18 months of the program. These improvements, together with improved pricing due to purchase consolidation, produced first-year savings of more than 10 percent.
"Everyone had to understand that we manage
tooling because we want to be more profitable," explains Terry
McCormick, manager of manufacturing engineering. "Everyone knows
they are going to have an expense for tooling, but if is not managed
well, it can have a significantly greater impact on your financial
position."
Despite the dramatic differences in the two
plants, the integrated tooling management programs are surprisingly
similar in their structure, evolution, and success. In both
programs, the tooling management company is the primary Tier I
tooling provider, with more than 80 percent of the spend for tooling
and related equipment, as well as a variety of MRO products.
Together with the plant, the suppliers reorder tooling, perform
receiving, handle quality assurance, manage or assist with the crib,
perform data entry and analysis, and take care of biweekly
invoicing.
And two characteristics make performance-based
tooling management unique: continuous improvement targets and a
focus on process improvement. The tooling management company is
given a set of annual improvement targets for key performance
metrics, including stock outs, inventory, setup times, and cycle
times.
More important, the suppliers are integral to the
improvement of machining processes. Using tooling management data,
the suppliers identify the most costly tooling operations and
coordinate investigations not only by their own technical staff but
also by key Tier II suppliers, including the major international
tooling manufacturers.
Both programs began with a focus on price savings
through consolidated purchasing, controlling tooling logistics
(reorder, receiving, quality assurance, stocking, and distribution),
and data collection and analysis. Once these objectives were met,
the programs shifted focus to process improvement. ETCO integrates
this focus on process improvement into the incentive structure for
its own employees.
Benefits
Programs at both plants produced immediate and
dramatic benefits in the control of tooling purchases, inventory,
and distribution. Expedited order charges and process downtime due
to stock-outs were eliminated. Invoice processing dropped to only
two per month. Eliminating dead stock, consolidating similar items,
and improving tooling tracking and delivery reduced inventory
significantly.
For example, at Haldex, inventory dropped from
$800,000 to $250,000 in the first 18 months of the program. These
improvements, together with improved pricing due to purchase
consolidation, produced first-year savings of more than 10 percent.
Yet the most important source of improvement was
data. At HNAI, a dedicated production operation, the plant and DCT
were able to accurately track tool consumption by machining
operation and part. By the end of the first year they were able to
calculate the tooling cost per unit of production for each product.
In subsequent years, both plants used data to
prioritize machining operations for improvement. "We used a Pareto
approach," notes HNAI general manager Joe Forbes. "From the data we
could easily identify the three products with the highest tooling
costs. Then, for each of those products, we identified the five
tools that contributed the most to those costs." They focused on
each of the high-cost machining operations.
"We collect data on the machine, the tool, the
part, existing speeds and feeds all the critical data," explains
Mike Moran, DCT vice president. "Then we invite in the tooling
suppliers to study the process and recommend tooling to test." One
recent example is the milling operation on a manifold production
line, which contributed 50 percent of the tooling cost for that
product.
The suppliers are integral to the improvement of machining processes.
"We've probably tested five or six cutters on the
milling machine over the last six months," says Moran. But the
results have been worth it. Not only was the best tool able to
complete the operation in one pass instead of two, but tool life was
extended three-fold.
Haldex estimates that the program annually
generates new savings or cost avoidances of about 5 percent per
year. In addition, they receive personnel assistance from ETCO worth
about 5 percent of the value of the contract.
But Haldex's McCormick believes one of the
greatest benefits of the integrated tooling management program has
been cash flow.
"A key to success on a month-to-month basis is
cash flow," he says. "You can buy a year's worth of inventory for a
particular tool to take advantage of a discount, but you've got a
negative cash flow plus you've tied up your cash in inventory that
you may not need. Once you've gotten control of your usage, your
supply lead time, and your inventory, you get control of your cash
flow."
Avoiding pitfalls
Implementing performance-based tooling management
is not easy, and old habits can be hard to break. One of the
greatest pitfalls to avoid is over-emphasis on tooling price,
blinding the company to the total cost of machining. Haldex Vice
President Brian Nelson explains:
"An integrated supply program can produce three
kinds of cost savings: price, administrative, and production. The
biggest potential by far is production, then administrative. There
are a lot of people out there who just focus on price, but you'll
end up with a system that costs you a lot of money in administrative
and process costs."
Another concern with tooling management programs
is losing control. But the performance-based programs at these two
companies demonstrate that just the opposite is true. As Mike Moran
of DCT explains, "HNAI retains final control of all tooling
decisions. And their staff needs to stay in touch with the suppliers
if they want to stay on the cutting edge. But all that contact used
to take a lot of time for HNAI personnel. Under the new agreement,
HNAI still makes the decisions, they still have control, but we
facilitate the process. We not only respond to contacts from
suppliers, we go out and solicit suppliers to address priority
problems in the plant. Our suppliers are a great resource we need
to keep them interested in doing business with us."
The same is true at Haldex. Early in the program,
Haldex and ETCO worked together to establish reorder points and to
further automate the purchasing process. Change is carefully
controlled. Changes to the quantities or types of tools purchased
require justification typically data as well as the signoff of
Haldex.
"We have had a successful and long-term
relationship with Engman-Taylor," explains McCormick, "but if they
substituted a tool without our permission, they'd be out of the
plant tomorrow."
"The plant can't abdicate its involvement or
responsibility for tooling management just because you have an
integrated supply program," Nelson insists.
While there are many machining improvements yet to be made, both
HNAI and Haldex recognize that their programs will have to change
with time. Yet one thing is certain: the future of performance-based
tooling management will continue to be part of process improvement.
Decatur Custom Tool Inc.
Engman-Taylor Company
What do you think?
Will the information in this article increase efficiency or
save time, money, or effort? Let us know by e-mail from our
website at
www.ToolingandProduction.com or e-mail the editor at
dseeds@nelsonpub.com.