Avoid the pitfalls of inventory waste with these observations and smart solutions from fellow precasters.
By Shari Held
Editor’s Note: This is the second article in a year-long series about how seven common types of waste in manufacturing can create unprofitable activity and how to address them in your plant.
Inventory waste can negatively impact any precaster’s bottom line. Besides the obvious cost of the excess or unusable raw materials and finished product, there are hidden costs. Have you considered how much you’re paying for lighting, heating and cooling the storage area, containers for proper storage, moving and handling and insurance? And what about the lost opportunity costs for the capital tied up in unprocessed or unusable materials or stock items for which you don’t have current orders?
Here’s what three precasters shared about the causes of inventory waste and the solutions they’ve implemented for minimizing it.
How inventory waste accumulates
One way precasters can get caught with raw inventory waste is by taking advantage of bulk discounts or other deals. Chuck Babbert, president of sales for Columbus, Ohio-based E.C. Babbert, noted the time the company bought rail steel at a good price. Unfortunately, it didn’t meet ASTM standards and snapped when bent.
“We got a heck of a deal on the front end but, when all was said and done, we ended up with a bunch of waste that we had to dispose of,” Babbert said.
Human error can also produce inventory waste, especially during busy production seasons when everyone is hustling to meet tight deadlines. Errors such as casting or coring blockouts that are a few degrees off, or mishandling and damaging product post-production will impact the bottom line.
“Haste makes waste,” Babbert said. “It’s waste unless you get lucky enough to find another job it will work for.”
Occasionally a precaster must change direction when a product’s design is modified prior to or during production. Sometimes jobs may be cancelled, leaving precasters with excess raw inventory or finished goods. Materials such as hardware may not be returned to the supplier, especially if they were made specifically for the job.
Restocking fees can help defray some of the costs, but not all.
“Even if you get paid for the product, it’s still sitting there in the plant,” said Clay Prewitt, general manager of East Wenatchee, Wash.-based H2 Precast. “Now you have to haul the pieces off and dispose of them.”
Another culprit of inventory waste is overproduction. It can be tempting to maximize a form once it’s set up in the plant and produce additional product to place in stock.
“We’ve made that mistake before,” said Michael Tidwell, president of Cartersville, Ga.-based Bartow Precast. “You’d be better off to fill that order and then move the form away.”
Improper storage is also a big waste contributor. Deliveries that are outside in the sun, rain or snow can sometimes be damaged.
Minimizing inventory waste
So, what can precasters do to reduce inventory waste while ensuring they’re covered for upcoming jobs and sales?
One strategy shared by Bartow Precast is to spot check finished goods, castings and raw materials monthly, comparing your observations with the computer inventory numbers. The company also trains workers to place material where it belongs right off the delivery truck rather than putting it in temporary storage where it can get damaged.
“Our business model keeps us from getting too far outside our specialty products,” Tidwell said. “We’re streamlined with a niche market. We don’t take on a new product line unless it really fits with our current business model. That has also helped us to reduce waste.”
Another strategy is to carefully select stock items. H2 Precast reviews annual sales over the past three years to make that determination. Each spring, the company tries to keep more than half of total annual sales for certain products in stock since summer is such a busy time.
“Ninety percent of the time this strategy works like it should, but there’s always 10 percent of product that doesn’t seem to move,” Prewitt said. “You know that at some point you are going to use it, but it just sits there. You’re kind of damned if you do and damned if you don’t.”
Calculations can be more complicated with raw materials.
“Everybody is in a different situation,” Prewitt said. “It’s going to come down to your cash flow, how many people you have and your ability to recover.”
H2 Precast worked hard to get employees to accept its inventory waste reduction program, stressing how inventory waste affects the company’s bottom line.
“We have a very good crew of guys that consciously make sure they aren’t banging product up and damaging it because that delays everything and it takes manpower to correct,” Prewitt said.
Babbert has been fortunate enough to find a nearby source that will take damaged product to fill a low area.
There’s no drop fee like there would be for a waste yard, although the company still has the expense of drivers, fuel and wear and tear on equipment.
“Once our product is made, you can’t just fold it up and throw it away,” Babbert said. “It has to be pulverized and the steel in it can’t go through a crusher. This is best option we’ve found.”
Babbert feels reviewing your quality assurance/quality control program to eliminate inventory waste in the plant and the yard is key. He also suggests using a precast management software program to track takeoffs and job quotes to save time and the compnay recently implemented a “cost of goods module” for its software program.
“We hope that will give us a better idea down the road on how much we’ve actually lost in a six- or 12-month period,” Babbert said.
Eliminate waste with NPCA certification
Babbert said the best tip he can give his fellow precasters to eliminate inventory waste is to become NPCA certified. Plant certification offers a comprehensive plan that any precast manufacturer can follow to produce quality products. The manual covers critical topics that includes production best practices, proper storage and handling, and more. This is all good information to begin a plant goal to remove wasteful plant practices.
Shari Held is an Indianapolis, Ind.-based freelance writer who has covered the construction industry for more than 10 years.