Strategies for Large Metalworking Plants   

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.

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