Some days, Cary Clay felt like he was putting together a giant jigsaw puzzle—with the pieces in constant motion. The puzzle was that week's material requirements, and the pieces were the nearly 4,000 parts that Clay needed to make sure that the plant had on hand to build that week's orders.

Clay is a materials supervisor at the Ashland City, Tennessee, plant of A. O. Smith Water Products Company. A. O. Smith makes commercial and residential water heaters, commercial boilers, and other hot-water storage solutions that are sold worldwide. A. O. Smith employs approximately 6,300 people in 14 plants worldwide. In Ashland City, there are 1,200 employees.

More than 80 percent of the Ashland City plant's business comes from water heater replacements. "Hot water is one of those things you take for granted until it disappears. We need to respond quickly to build precisely the heaters that our customers need," says James Hutzel, director of distribution and logistics for A. O. Smith Water Products Company.

It falls to Clay and the plant's material planning group to monitor inventory. In the past, every Monday morning, planners would use the company's enterprise resource planning (ERP) system to check inventory balances. They would transfer the previous week's inventory usage figures into a spreadsheet, apply formulas, and send out parts orders to suppliers, formatted as spreadsheets attached to e-mail messages.

"It was very time consuming to generate forecasts based on ERP data," Clay says. "Planners had to go through the forecast line by line and often walk the shop floor to check the inventory numbers. They typically spent all day Monday creating the forecast and the rest of the week expediting parts to meet changing customer schedules."

"In some cases, we were carrying more inventory than we needed and not always the right inventory," Hutzel adds. "A stock-out required expensive expediting and affected our on-time delivery to customers. To grow our business and improve customer service, we needed to give our employees better tools for managing inventory."

A. O. Smith had already embraced the demand-driven method of inventory replenishment called "kanban," pioneered by Toyota Motor Corporation. In manual kanban, physical cards accompany parts from receipt to consumption, providing visibility across the replenishment cycle. However, manual kanban is difficult to extend to the supply chain and to manage across thousands of parts and dozens of factories.

A. O. Smith management asked Hutzel to identify an automated kanban solution and implement it at all the company's North American plants. Hutzel looked for software that was easy to use, easy to integrate with the company's AS/400-based ERP system, and easy to customize. Hutzel and his team selected Ultriva Electronic Kanban running on the Windows Server 2003 operating system and using Microsoft SQL Server 2005 database software.

Ashley Stirrup, Chief Executive Officer of Ultriva, a Microsoft Certified Partner, says, "Microsoft has a huge initiative in lean manufacturing. Using Microsoft software, we're able to bring products to market quickly and cost-effectively." Led by Clay, the Ultriva implementation project leader, and his team, A. O. Smith deployed Ultriva Electronic Kanban at its Ashland City plant in three business days. Approximately 20 suppliers also started using the system.

Ultriva Electronic Kanban automates the manual kanban process and gives materials managers, receiving personnel, and suppliers instant, accurate visibility into A. O. Smith's inventory, using a Web-based interface. When suppliers manufacture parts for A. O. Smith, they attach a kanban label generated by the Ultriva system. When the parts arrive at the loading dock, the receiving clerk scans the label, which updates the parts' status as "received," and stores the parts in inventory. When a part is removed from inventory, it's scanned again, which automatically eliminates the part from inventory and sends a new order to the supplier.

Because orders are placed automatically, planners can spend more time improving the efficiency of the supply chain. For example, they can transfer Ultriva data to Microsoft Office Excel spreadsheet software to see inventory trends or compare supplier performances. A. O. Smith has also integrated Ultriva with the Microsoft Office Outlook messaging and collaboration client; when a part reaches a critically low level, Ultriva sends an e-mail message to the internal planner and the supplier. "E-mail alerts provide an extra layer of protection against stock-outs," Clay says.

By implementing electronic kanban software, A. O. Smith has been able to make its plant-floor personnel and suppliers effective agents in the replenishment cycle, squeezing out inefficiencies, errors, and costs. A. O. Smith has boosted its on-time customer delivery rate significantly, increased inventory turns by 100 percent, and substantially reduced inventory. "The Microsoft foundation contributed to the product's ease of use, customization, and straightforward implementation," Hutzel says. "It took very little investment to get the product up and running and our users comfortable with it."

With orders placed automatically and inventory tracked electronically, material planners have more time to think strategically about inventory usage, supplier performance, and problem avoidance. Material planners have easy access to inventory levels and can see potential problems and inventory reduction opportunities. "Planners are able to spend their time monitoring supplier performance and driving improvements in the supply chain; they're not on the phone all day resolving problems," Hutzel says. "As a result, job satisfaction is much higher."

Observes Dan Greenwood, an inventory control specialist at the Ashland City plant: "Because everything's barcoded, inventory figures are accurate, and we don't need a receiving clerk to key in shipment data. I have a much better view of inventory and more time to do things such as inventory-cycle counts."

Adds Hutzel, "We've pushed supply chain management down to the factory-floor level; the employee building the heater is now a key part of the replenishment process."

A. O. Smith can also measure supplier performance more easily and effectively. "Now, using Ultriva, we can calculate supplier delivery performance faster and more accurately and share the figures with suppliers," Clay says. "Our average on-time supplier performance has improved by 16.8 percent from 2006 to 2007."

Cyndi Boehmer, inside salesperson for the A. O. Smith Protective Coatings Division, an internal supplier, says, "With the new software, I can go in and see how much material each plant has on hand. As they use parts, I can see what they need, which helps me plan truck scheduling. My job is much easier; I don't have to call the plant and ask someone to run out on the floor and count inventory."

Denise Provence, manager of customer service and master scheduling at White-Rodgers, another A. O. Smith supplier, says, "Before, I received an inventory report each week from A. O. Smith. Now, I can use Ultriva any time of the day or week to see their balance on hand."

A. O. Smith now has the data with which to compare committed to actual delivery times and eliminate excess inventory. For example, a valve supplier told A. O. Smith that it had a ten-day lead time, when it actually delivered its valves in six days. A. O. Smith was able to pull four days of inventory out of the system. "When we multiply such time savings by the hundreds of parts that are in a heater, we realize substantial savings," Hutzel says.

A huge improvement has been the ability to increase the on-time delivery rate to customers—known in manufacturing circles as the customer fill rate. "This means that we're able to deliver what the customer wants, when they want it," Clay says. "This has a huge impact on customer satisfaction."

The Ashland City plant has been able to reduce its purchase material planning group and similarly streamline and redeploy its receiving staff. "We're able to run our factories leaner and simultaneously drive down inventory costs, all of which benefits our customers," Hutzel says. "Our expectation is that we'll be more competitive in the marketplace in the longer term."

Over the last two years, A. O. Smith has increased inventory turns by 100 percent and reduced excess inventory. "We've freed up cash, all the while improving customer fill rates," Clay says. "That's an amazing accomplishment for a U.S. manufacturer."

A. O. Smith also reduced inventory at the Ashland City facility by 20 percent annually. "Parts usage is tied electronically to replenishment, so we no longer have to stockpile parts to meet orders," Clay continues. "With all the savings we've achieved, the return on our electronic kanban investment has been just a few months."

By reducing inventory, A. O. Smith also freed up 40 percent of its stock room in Ashland City, giving it extra space to use for other continuous-improvement projects. For example, A. O. Smith invited one of its label suppliers to use this space, to build a shop where it stores A. O. Smith's label inventory. "Making better use of our real estate gives us more opportunities to drive additional costs out of our process," Clay says. "Every aspect of our plant's supply chain is more efficient and effective now."

---

Was This Information Useful?