Examensarbetet i Systemekonomi

A model for cost effective improvement of a

raw material management in the inventory: A

Case study

En modell för kostnadseffektiva förbättringar av råmateriallagrets

hantering: En fallstudie

Författare: Oscar Christensen, Magnus Rosvall

Handledare företag Jaroslaw Modzelewski,

Emmaboda Glas AB

Handledare LNU Anders Ingwald

Examinator, LNU Basim Al-Najjar Termin: VT12 15 hp

Ämne/kurskod 2SE09E

Acknowledgement

We would like to thank everyone that has contributed to this thesis in one way or another.

A special thanks to the personnel at Emmaboda Glas AB for their contributions with valuable

information during our study visits. Without your support the thesis would not have been

possible to complete.

We would like to thank our tutor at the company, Jaroslaw Modzelewski, for his support and

contributions.

We would also like to thank our tutor Anders Ingwald for his support throughout the thesis,

your guidelines and support has been very useful and valuable.

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Abstract

The single largest expenditure in the production industry is usually the materials´ costs. In the

average producing company, half of the sales revenue covers the materials´ costs. Raw

material inventory aims to have the right amount of material, in the right place and at the right

time, for as low cost as possible. In the raw material inventory there are often different critical

items and the amount of them can be hard to handle at one time. In this thesis a cost effective

model was developed for the raw material inventory management. Starting with identifying

the most critical raw materials and the relationships between them and the first step in the

production. It is also important to work with the information flow and the model aims to find

what information each department needs and establish a suitable communication channel

between the departments. In order to test the applicability of the model it was tested on a case

company. The result from the model testing was new placements for the raw materials and a

new communication flow.

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Table of content Keywords definition ......................................................................................................................... 6

1. Introduction .............................................................................................................................. 7

1.1 Background ....................................................................................................................... 7

1.2 Problem discussion ........................................................................................................... 8

1.3 Presentation of problem .................................................................................................... 8

1.4 Problem formulation ......................................................................................................... 9

1.5 Purpose .............................................................................................................................. 9

1.6 Relevance .......................................................................................................................... 9

1.7 Limitations/Delimitations ................................................................................................. 9

1.8 Timeframe ....................................................................................................................... 10

2. Research methodology ........................................................................................................... 11

2.1 Quantitative research ....................................................................................................... 11

2.2 Qualitative research ......................................................................................................... 11

2.3 Case study ....................................................................................................................... 11

2.4 Data gathering methodologies......................................................................................... 11

2.4.1 Data quality ............................................................................................................. 13

2.5 Induction and deduction .................................................................................................. 14

2.6 Methodologies used ........................................................................................................ 14

3. Theory .................................................................................................................................... 15

3.1 Inventory control tools .................................................................................................... 15

3.1.1 Inventory management system ................................................................................ 15

3.1.2 Keeping track of raw material ................................................................................. 16

3.1.3 ABC-analysis ........................................................................................................... 16

3.2 Cost effectiveness in investments ................................................................................... 17

3.3 Lean wastes ..................................................................................................................... 17

3.4 5S .................................................................................................................................... 18

3.5 Inventory layout .............................................................................................................. 18

3.6 Information flow ............................................................................................................. 19

3.6.1 Information overflow............................................................................................... 20

3.6.2 Information sorting techniques ................................................................................ 20

3.6.3 Communication channels ........................................................................................ 21

3.7 PDCA .............................................................................................................................. 21

3.8 Cause and Effect Diagram .............................................................................................. 23

3.9 Interaction between raw material inventory and production ........................................... 23

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3.10 Inventory management system and cost effectiveness ................................................ 24

4. Model development ................................................................................................................ 25

5. Empirical findings .................................................................................................................. 29

5.1 Company description ...................................................................................................... 29

5.2 Description of raw material ............................................................................................. 29

5.3 Inventory layout .............................................................................................................. 29

5.3.1 The new storage area ............................................................................................... 30

5.4 Description of the raw material inventory ...................................................................... 30

5.5 Information flow of Jumbo plates consumption ............................................................. 30

5.6 Consumption sheet .......................................................................................................... 31

6. Model testing.......................................................................................................................... 33

6.1 ABC-analysis .................................................................................................................. 33

6.2 Relationship chart ........................................................................................................... 33

6.3 Inventory layout .............................................................................................................. 34

6.4 Fishbone diagram ............................................................................................................ 36

6.5 Information sorting ......................................................................................................... 37

6.5.1 Information overflow............................................................................................... 37

6.5.2 Information sorting technique ................................................................................. 37

6.6 Information channel ........................................................................................................ 37

6.7 PDCA .............................................................................................................................. 38

7. Results .................................................................................................................................... 39

7.1 Results from the model testing ........................................................................................ 39

7.2 PDCA .............................................................................................................................. 39

8. Conclusions ............................................................................................................................ 40

8.1 Conclusions of the model testing .................................................................................... 40

8.2 Conclusions regarding the models´ applicability ............................................................ 40

9. Recommendations .................................................................................................................. 42

9.1 For the case company ...................................................................................................... 42

9.2 For users .......................................................................................................................... 42

9.3 Model improvements ...................................................................................................... 42

Reference list .................................................................................................................................. 43

Appendixes ..................................................................................................................................... 45

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Keywords definition Short descriptions of the definitions that are used in the report are given in this chapter.

Effective: Powerful acting, fast acting.

Efficient: With limited resources.

High runner: The high runners are the glass plates that are used the most in the production.

Jumbo plate: This is the glass plates that have the dimensions of 6000 mm times 3210 mm.

Low runner: The low runners are the glass plates that are used rarely in the production.

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1. Introduction In this chapter the background to the problem is presented and the actual problem that will be

dealt with in the report is discussed and clarified.

1.1 Background The goal with inventory management is to have the right amount of material in the right place.

It should also be available at the right time and at as low cost as possible. But the inventory

can also have the opposite effect. A poor inventory management can lead to long lead times,

long queues, unsynchronized product flow and costly set ups. Everything within the inventory

that there is an overflow of is considered as waste.

Problems with inventory are issues that are associated with all types of industries. It is not

only profit making organizations that may have control and maintenance problems of the

inventory. Inventory can be defined in several different ways, for example:

The stock of material at a given time waiting for future processing.

A specified list of all physical assets.

The value of owned material at a given time.

To determine the quantity of available material. (Tersine, 1994)

In this report inventory will be referred to as the first definition.

Inventory is necessary because it is hard to find the right balance between demand and supply.

The balance differs due to several factors such as: time, discontinuity, uncertainty and

economy (Ibid).

The costs of the inventory are connected to the operations or lack of operations that is

necessary for following the inventory management strategy. The costs can be divided into

four categories:

Purchase cost.

Order/setup cost.

Holding cost.

Stock out cost. (Ibid)

The purchase cost is defined as the cost for purchase and freight costs to the inventory. Order

/setup cost is defined as writing purchase orders, analyzing vendors, inspecting material,

following up orders and complete transactions. Holding cost is defined as the cost for having

material in the inventory such as insurance, handling, deterioration and ageing (Ibid).

When the inventory consists of various critical objects it is possible to classify them into

different classes. Class A is the most critical objects that should not be running out of

inventory due to the high stock out costs. Therefore a more sophisticated control system for

these items should be implemented (Silver, et al., 1998).

In order to get a cost effective inventory management system it is suggested that there should

be a strive for maximizing the use of the layout, protection from damages, accessibility of the

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materials, ability to locate material, reduction of administrative costs, and the use of

equipment connected to the inventory (Müller, 2003).

1.2 Problem discussion Many organizations have problem with their raw material inventory. The goal is to have as

low inventory level as possible but it is also necessary to have right amount of material in

order to meet the customers’ demands that vary with time, the economic situation and

uncertainty. A raw material inventory that is managed properly is often the solution for

reducing unsynchronized production flow, costly set ups, long lead times and long queues

(Tersine, 1994).

Within the inventory there are a lot of problems that can occur:

Substandard of raw material.

Absences of workers.

Late delivery.

Unavailable inspectors and set up persons. (Ibid)

Those points above should be considered as obstacles for the material flow (Ibid).

Holding costs are the costs relating to having items in the inventory such as insurance of the

materials, handling of the materials, deterioration and ageing. Costs related to not having

materials in the inventory for production is defined as stock out costs. This will lead to profit

loss, lost production and delay of completing in time (Ibid).

In the inventory are usually different critical materials used and therefore it is preferable to

classify the materials into different groups. Group A is the most critical and here is where a

more sophisticated control system should be used for material management (Silver, et al.,

1998).

To make the inventory cost effective the use of the layout should be maximized, the material

should be protected from damaging itself and other factors that may affect. The accessibility

should be high and the materials should be easy to find fast (Müller, 2003).

1.3 Presentation of problem The problems to be managed in this project are the production department’s information flow

with the purchase department in order to have the right material in the right time and the

layout of the inventory in order to make the layout as utilized as possible which will lead to

faster localization and better control of the raw material level.

The problem is important because no theories have been found that covers the entire chain

from information needs to the layout of the raw material inventory.

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1.4 Problem formulation The problem of our thesis is:

How to plan and manage the raw material inventory in order to reduce production stoppages

due to material shortages in a cost effective way?

1.5 Purpose The purpose is to develop a model for raw material management that will reduce production

stoppages through having the right amount of material on the right place in the raw material

inventory in a cost effective way.

1.6 Relevance This subject is relevant to deal with due to the costs that are connected to inventory

management. With right management these costs can be as low as possible and the material

flow can be synchronized to the production (Tersine, 1994). Working with the inventory

management is essential for companies that want to be competitive, stay in business and gain

market shares. It is established that 30-35 percent of the material value is directly related to

managing the inventory (Wallin, et al., 2006). Inventory is defined as one of the seven wastes

by Taiichi Ohno. It is also the one that is most visible and can represent 5-30 percent of a

company’s total assets (Goldsby & Martichenko, 2005).

Due to the high costs that are connected to inventory management it is important to find a

model that fits companies´ different needs for material management in a cost effective way.

The subject of this report is relevant because it brings up the chain of how to define which the

most frequently used raw materials are that should be focused on, how to make cost effective

improvements in the raw material inventory in order to manage them better and how to

establish a communication with the purchasers responsible for keeping the stock in the right

level. When literature searches have been made, no previous works have been found that

cover the whole chain from finding which the most frequently used raw materials are and how

to make improvements.

Most theories cover parts of the chain but the model developed in this report covers the

holistic view of how to manage a cost effective improvement of the raw material inventory

management.

1.7 Limitations/Delimitations No more steps of the production line than the raw material inventory will be looked at.

Limitations will be the time frame. For this report is no more than ten weeks available for data

gathering and analyzing. Due to the short time frame it will not be possible to measure the

long term effects of the results.

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1.8 Timeframe This is the planned time frame that is set for this thesis.

Weeks 12 13 14 15 16 17 18 19 20 21

Tasks

Problem formulation

Chapter one

Chapter two

Theory

Empirical findings

Submission 1-4 12 apr

Analysis

Results

Conclusions

Submission 1-7 2 may

Recommendations

Adjustments

Submission report 23 may

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2. Research methodology This chapter will describe the methodologies that have been used in order to perform this

project.

2.1 Quantitative research Quantitative research methodologies are e.g. based on numerical data and are suitable for

measurements of different variables, error estimations and comparing information and

perceptions. It is important to remember that the investigator should be impartial in relation to

the research that is performed. There are different ways to perform quantitative researches.

For example can surveys and interviews, measurements and experiments be used. Surveys

and interviews are tools for obtaining quantitative data from respondents but it is also possible

to obtain qualitative data with these tools. The respondents can be randomly selected or be a

selection from a chosen target group. The questions that are given in the research should be

with given alternatives in order to be quantitative. The questions can also be divided into

different categories, category questions with different alternatives, numerical questions which

are answered with a number e.g. age, multiple-choice questions, ranking questions and

questions with a Likert scale e.g. how much do you agree with this statement and the answer

will be given on a scale from one to five (McMillan & Weyers, 2010).

2.2 Qualitative research Qualitative researches are suitable for investigating opinions, valuations and to compare

respondents’ interpretations. Qualitative researches are an investigating methodology. When

questions are given to the respondents it is important to exclude questions that are limiting

and leading. When the questions are properly asked in a qualitative research the probability is

lower that the respondent will be guided than in a quantitative research. These types of

researches are usually performed on a small target group or single subjects. These researches

will give the asker a deeper understanding of the case that is investigated than a quantitative

research which mostly will give answers in numbers. When performing an interview the

researcher can obtain extra information from the language that the respondent uses when he

answers to different questions (McMillan & Weyers, 2010).

2.3 Case study When a case is selected there are three different criteria that should be considered, if the case

displays the ideal situation, if it displays the typical situation or if it is a randomly selected

case. The case should be selected from the purpose, problem formulation and theory. It may

be hard to generalize if only one case is used but it could be utilized in order to display

qualities if the report is critically made. If many cases are used it is possible to show

differences and patterns, coincidence may also be eliminated (Rienecker & Stray Jørgensen,

2008).

2.4 Data gathering methodologies When gathering data, or doing a research, there are several different approaches. Each one of

them is applicable in different situations and their value, advantages and disadvantages vary.

One of the methods might be preferable in one situation but not in the next (McClelland,

1994).

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McClelland (1994) write that there are four different methods suitable for research and data

gathering:

Survey questionnaires

Individual interviews

Focus groups

On-site observations

Survey questionnaires are commonly used as a research tool that provides cost effectiveness

and reliability. The data gathered can be both qualitative and quantitative. A

survey/questionnaire can give both accurate and relevant data to work with. An important

thing to keep in mind is to present the produced data in a way that represents the facts just the

way they were found. It is important not to, under any circumstances, try to manipulate the

data (McClelland, 1994)

An individual interview is the second tool for gathering data. This tool will provide a direct

contact with whoever is interviewed which will allow more possibilities than many other

tools. Basically it is possible to perform an individual interview in two ways, either face-to-

face or via a telephone interview (which can be seen as an alternative method). The individual

interviews can also be divided into two categories depending on the structure of the questions

that are being asked, they can be either structured or non-structured. Structured interviews are

mostly performed when the topic/research area has been narrowed down. The prepared

questions are usually much targeted and the respondent can answer only yes or no. Sometimes

there is room for additional input but it should be kept short and specific. Non-structured

interviews are mostly performed when the topic/research area is much more broadly defined.

The questions asked here are not as targeted as for the structured interviews (Ibid).

Individual interviews have some major disadvantages such as: they are the most expensive of

data gathering methods, they are very time consuming and they most often requires an

experienced interviewer. However they also have major advantages such as: they provide

excellent qualitative data but also direct observable feedback which is to strive for when

gathering data (Ibid).

Before performing an interview, whether it is face-to-face or a telephone interview, there are

many things to plan and prepare. Depending on the size of the data gathering there should be

a script made to follow how the questions are planned well in advance. Later, during the

interview, there should be notes or records of the interview (Ibid).

The third tool for gathering data is to use focus groups. This is a tool that has become more

popular nowadays, especially in the marketing industry as a great tool to gather

information/feedback on the behavior of buyers and consumers. Even though it is a good tool

it is rarely used as the only gathering method, it is mostly used together with another tool such

as survey questionnaires or individual interviews. An important thing to keep in mind when

working with focus groups is to understand the group dynamics in order to be able to produce

and analyze data from the group setting (Ibid).

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The last of the four tools is on-site observations which are quite often used within the

industrial engineering profession. It includes time and motion studies and the data from it can

be both qualitative and quantitative however it is most often qualitative. This method gathers

empirical data which means that the data gathered might be proved or disproved by collecting

the data once more. This is why there should be another method used to be able to analyze the

data (Ibid).

A great advantage with this method is that it is possible to collect data directly from the ones

who are performing the task etc. This makes it possible to gain firsthand knowledge about the

area that is researched. It works best when the process researched can be observed, measured

and analyzed (Ibid).

2.4.1 Data quality

When gathering the data there are many things to consider and different approaches to chose

between. One of the more important things to consider is the amount of data which are

collected and analyzed. Rienecker and Jørgensen (2008) write that there is a need to decide

upon the optimal amount of data for the project because the wrong amount will affect the final

result in a bad way. If there are too much data collected there will be a need to spend too

much time for reading and analyzing the data instead of writing, while collecting a small

amount of data may result in not having enough data to cover the topic (Rienecker & Stray

Jørgensen, 2008).

Another thing to keep in mind is that it is not just the quantity of the data that are important,

the quality is also important. Often it is better to chose a smaller amount of data and put more

work to analyze and write it, than spending time on collecting a lot of data and less time on

the analyzing and writing part (Ibid).

Another important thing to consider is the sources from which the data is gathered. First of all

the sources need to be valid but it is also important to strive for collecting as updated data as

possible since it will make the result more accurate. Therefore articles are to prefer but also

books, unless they are published many years ago (Ibid).

The data gathered can also be divided into different types of data. Rienecker and Jørgensen

(2008) write that there are three types of data that are relevant for a thesis.

Information and other material, such as pictures and interviews, about the case that are

researched.

Literature about theories and definition used to research.

Literature about the methods used in the research.

Rienecker and Jørgensen (2008) also state that the data collection should be wide before the

problem formulation is complete as the research about the topic in general. But it should then

become narrower when starting to work with the specific problem formulation and gather data

only closely related to it (Ibid).

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2.5 Induction and deduction There are two different methods to use when drawing conclusions. These are the induction

and deduction models. They differ in what kind of data they use to draw the conclusions.

Induction use empirical findings to draw conclusions while deduction use logic. These two

methods can also be combined which will form a third method called hypothetic-deduction.

(Thurén, 2007)

Induction is used to draw general conclusions using empirical data. Since the conclusions

from this model are very general the reader need to know how the research has been carried

out in order to know how trustworthy it is. Reliability and validity most therefore be

considered which will assure that the researcher have researched what was meant to research

and that all measurements have been carried out in a proper way (Ibid).

Deduction is based on drawing logical conclusion which will be considered as valid, and true,

only if it is logically coherent. This means that it can be considered as valid even if it does not

comply with the reality (Ibid).

The hypothetic-deduction model uses a combination of the induction and the deduction

model. This model starts by creating hypotheses before creating a deductive conclusion. In the

end the results are tested in order to see if they match the reality (Ibid).

2.6 Methodologies used As Samuel B. McClelland (1994) state there are several ways to collect/gather data and their

applicability vary depending on the case. In this case study a combination of the two methods

that Samuel B. McClelland (1994) mentions, individual interviews and on-site observations

have been used.

In order to get better understanding for the different work tasks within the inventory it has

been chosen to perform several individual non-structural interviews with both the operating

personnel, team leaders and the production manager. Interviews have been chosen because it

will give the interviewer instant feedback from the questions asked. Since the workforce in

the cutting department is divided into two shifts interviews with both shifts have been

performed in order to take more perspectives into considerations.

On-site observations have also been used in order to gain knowledge of how the actual work

is performed practically and how the inventory layout looks like. This also helped to find

places/ways where possible improvements could be made.

In order to get statistical data for the calculations, production- and purchasing systems have

been used to collect data for previous purchases, outtakes from stock, stocktaking and sales.

All the data were collected from a five months period from the first of November 2011 to the

last of March 2012. To be able to compare and calculate the data everything were taken from

the same five months period.

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3. Theory In this chapter the theory that has been used for developing the model is presented regarding

the raw material inventory layout and the information flow.

3.1 Inventory control tools In the production industry the single largest expenditure is usually the materials´ costs. The

average producing company spends half of their sales revenue on purchased raw material and

components. Raw material in the inventory is materials that are bought from suppliers and

later on used as inputs to the production process. (Tersine, 1994)

There are four different levels of business control; sales order processing, engineering,

production planning and inventory control. The inventory control level organizes the day to

day business. It is mainly short term planning that is relevant for this level. The focus point is

to keep the right amount of material in inventory and tracking its movements. Warehouse

management is the executive level. The concern is to make the best use of the resources, both

material and human. To make this possible high quality data are required. Usually the

warehouse management must be connected to an inventory control system. Warehousing is in

first case about controlling materials physically. It is important to have an information flow

that goes hand in hand with the material flow. The managers of the inventory must know the

physical position of the material and he must also know all information connected to time and

place. The monitoring and measurement of the inventory is about knowing everything that is

useful for having an effective management of the inventory. (Ballard, 1996)

3.1.1 Inventory management system

In order to arrange a good management system for the inventory it is essential to look at the

problems that are struggled with. In order to make the monitoring easier computerization is to

strive for. The more exact the monitoring is and the faster the information from the

monitoring is the more it is possible to utilize the inventory layout and the resources within it.

This will also lead to a reduction of errors and a higher customer satisfaction through faster

lead times. With faster and more exact information from the inventory it will be easier for the

managers responsible for managing the inventory to perform their job. With a good inventory

management system it will not be necessary for the individuals in the information chain to

have their own stand alone systems that provide them with information in order to help them

perform their tasks. (Ballard, 1996)

When it is time for implementing or improving the existing system it is important to start with

being sure of the information about the high runners in the production, when they are covered

it is time to turn to the slower items in the inventory. Information should have a clear

connection to quality and improvement thinking should be attendant. Errors should be

recorded in order to map out which errors are most common. When that is established it is

time to find the root causes behind them and eliminate them (Ibid).

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3.1.2 Keeping track of raw material

In the inventory there are several different ways to measure the material level and status. The

different parameters can be divided into three categories, fixed information, variable

information and derived information. (Ballard, 1996)

Fixed information covers information about Stock Keeping Unit, this information will not

change often. Included in this category are:

Product code.

Description.

Batch number.

Size.

Weight.

Preferred store area.

Secondary store area. (Ballard, 1996)

Variable information is information that changes all the time. It can even be changed many

times during the day. This category handles information about movements, locations and

quantities. Included in this category are:

Unique information about each unit load in the inventory.

Location of each unit load.

Quantity of Stock Keeping Unit in each location.

Movement of each picked item.

Load status e.g. available and hold. (Ballard, 1996)

Derived information comes from analyzes of the Fixed information and Variable information.

Included in this category are:

Movement rate connected to Stock Keeping Unit.

Inventory differences.

Utilization of the inventories space.

Productivity. (Ballard, 1996)

3.1.3 ABC-analysis

Due to the significant number of transactions that are connected to the material management it

is important to have classifications of which materials that are most important to focus on. In

order to help the managers to make their work easier to carry out it is preferable to sort out all

information that is not important to concentrate on. The items that demand high precision

should be separated from those that are less demanding. In order to gain a cost effective

inventory selective material management can be adapted. It is usually not economical to have

a concentrated level at all items in the inventory. Often a small percentage of the items in the

inventory represent the majority of the value of all items represented. The items that are less

expensive are usually more economical to buy in large quantities and to have a lower control

over them in the inventory. The expensive items should be purchased in low quantities and

17

the control over them in the inventory should be carried out on tight intervals. In order to sort

out which items should be controlled more or less it is preferable to classify them into three

groups, A, B and C. The dollar volume is what determines which group they should be

divided into. A is the most important items, B is the middle category and C is the less

important items. The A-items dollar volume usually represents 75-80 percentage of the

inventory’s total value while the percentages of items represented usually are 15-20. B-items

represent 10-15 percentage of the value in inventory and approximately 20-25 percentages of

the items. C-items represent 5-10 percentages of the inventory value and 60-65 percentages of

the items in inventory. To calculate the inventory value for the items the following calculation

should be performed: annual demand multiplied by the unit cost. When annual demand is

used distortions from season changes will be eliminated. (Tersine, 1994) The percent limits

are not fixed. When the items are accumulated in a list analyze should be carried out in order

to establish the limits between the classes. The limits above are only to consider as guidelines.

(Mattsson & Jonsson, 2003)

3.2 Cost effectiveness in investments Cost effective means that the investor gets profit back from the investment that is made. It can

however be hard to calculate how much an investment will pay back in some scenarios. For

example as Williams writs: “£10 paid for a bottle of penicillin on behalf of a person with

pneumonia would probably bring benefits (physical and financial) infinitely greater than the

outlay” (Williams, 1996, p. 26). In this case it is only possible to establish how much the cost

is but the benefit from it is not measurable. There are also many examples of when an extra

expenditure in facilities planning can give back enormous value to the investor, for example

professional space planning and energy management from which it can be hard to define the

actual amount of pay back (Williams, 1996).

Return On Investment (ROI) has for many years been the tool for calculating the value on the

payoff from investments. The tool is applicable on all types of investments not only capital. If

a ROI calculation shall be of use it has to take many aspects in consideration in order to be

trustworthy, such as credibility, soundness and simplicity (Phillips & Phillips, 2009).

3.3 Lean wastes The seven wastes within lean are considered as consumers of time, money and people without

giving any extra value to the customer. The first and most common waste is over production

which will lead to tied up capital and space within the inventory. The second is excess

inventory which is caused by over production. The third waste is waiting, materials that are

waiting for value adding processing or workers waiting for to start processing. The fourth is

unnecessary movements of products that travel between work stations. The fifth is

unnecessary movements of workers that have to move around in the factory to find tools and

parts necessary for processing. The sixth waste is unnecessary or incorrect processing which

can be people that are monitoring machinery that can monitor themselves. The seventh is

waste which leads to scrap, rework of the faulty product or repair (Arthur, 2007).

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In order to reduce the five first wastes lean thinking can be applied and for the last two, six

sigma can be a part of the solution. 5S in a tool that will help to reduce the wastes through

reorganizing work in order to simplify, make more visual and straight forward (Ibid).

3.4 5S

5S is a philosophy, or even a system, widely used within the lean concept and it is often one

of the tools companies choose to implement first when they start to work with lean. It is used

in order to reduce waste and optimize productivity and quality. This is done by establishing,

and maintaining, an orderly and well sorted workplace where everything has its place. This

can be done by using visual cues which strives to give better and more consistent operational

results. The 5S philosophy put a lot of focus on establishing routines for the everyday work

tasks. By establishing routines that maintain organization and order, efficient flow of

activities will be enabled. There is a definition of the 5S below (Bayo-Moriones, et al., 2010).

Sort – Oversee the workplace and try to eliminate unnecessary items that will not be

used in the operations that are performed.

Set in order – Establish methods for storing items as effective and efficient as possible

so that they are easy to find and use. This may involve labeling the items. Place the

most frequent used items nearest to the user.

Shine – Clean the workplace so that it is clean and fresh. Strive to clean every day to

maintain a clean workplace. (Arthur, 2007)

After implementing these three first 5S the work continue with the remaining two which focus

on sustaining what have been accomplished so far. This is done in order to make sure that the

work will be performed in the same way instead of going back to the way it used to be (Bayo-

Moriones, et al., 2010).

Standardize – Take the best way to perform a specific task and standardize it so that

everyone will do it the same way.

Sustain – This is probably one of the hardest S to implement. Work with the workers´

behavior and try to change the habits on how to perform the tasks. This is important to

prevent the workers from going back to the old way of performing the task. Changing

the habit will make sure that the task is performed in the right way in the future which

is essential in order to get better results. (Arthur, 2007)

5S has quite a broad focus as it considers a lot of things such as the values of: organization,

standardization, a clean and neat workplace as well as discipline. It aims to do this without

changing the current set up of the workplace which makes it applicable to most factories

(Bayo-Moriones, et al., 2010).

3.5 Inventory layout The facility is often the most expensive asset a company has and therefore a high utilization

rate is to strive for. When planning an inventory layout there are several points to account for

in order to have a sustainable layout that can be changed over time. The layout should be

designed in an order that helps to save time in the production. It is important to have a

19

inventory layout that is flexible for adjustments when it comes to rapid market changes. New

products should be easy to implement into the inventory layout when demand changes. The

layout should be optimized for a small amount of items. A small number of managers should

be involved in order to get a smooth decision making (Kerns, 1999).

Before planning the layout of the different items in an inventory it is important to define the

relationships between them. There is a scale on which the relationship can be evaluated.

A - Absolute important to have departments connected.

E - Especially important to have departments close.

I - Important to have departments nearby each other.

O - Ordinary departments should be conveniently near.

U - Unimportant if departments are apart

X - Indicates that it is preferable to have departments apart.

XX – Indicates that it is important to have departments apart. (Kerns, 1999)

In Fig 3.5 Activity relationship chart should the departments be placed on the rows and in the

squares should the letters from the relationships above be filled in. This will help to

graphically show which departments should be near each other and which should be

separated. (Tomkins, 2010)

Fig 3.5 Activity relationship chart.

In the next step, after the relationships have been established, an evaluation of how much

space is required for each department is made. It is important to consider growth in the future

when space requirements are established. It is also important to think of the limitations that

the building has when it comes to shape and available sqm. (Ibid).

3.6 Information flow Information flow is an important part in every producing company. A company uses

resources, materials and components etc. to produce their final products. To be able to utilize

and combine all these activities in the right way, a managed information flow is needed.

Almost everything a company does involves some kind of information that needs to be sent

between different actors (Mattsson & Jonsson, 2003).

The information flow can be seen as a management tool to control what happens in the

factory. For example, when an order is placed the information about the order is sent to the

20

next step. When ordering raw material the information is sent to the supplier who later

confirms the order and sends the goods. The information that is send will contain specifics

about the order such as what product was ordered, what quantity and delivery specifications

etc. In this way the information sent controls what will be delivered (Ibid).

Information can also flow in multiple ways, for example between a producing company and

its suppliers, or between the company and its customers. In these cases information needs to

be sent both from and to the company. When purchasing raw material from suppliers

information needs to be sent from the company to their suppliers about orders and quantity

etc. As well as from the supplier to the company in form of order confirmations and delivery

details etc. The information flow between the partners described above can further be

categorized into two information types, demand and availability (Ibid).

Many of the activities within a company are initiated by an information flow. For example

when money transactions are carried out, they always start with information being sent

between different actors. If there is an error somewhere in the information flow the money

transactions will not be carried out in a proper way, in this meaning it is very important to

control and manage the information flow but also try to optimize it by finding new ways to

make it more effective (Ibid).

3.6.1 Information overflow

In organizations today there is often a problem with too little information but it can be just as

faithful with information overflow. According to researches three different scenarios can be

reached. The first scenario is that the search for information will be superficial and important

information will not be found. The second is that the criticism of the information will be

lighter and the analysis will be superficial. This can lead to misinterpretations of the

information. The third scenario is that the information will be untouched until someone

demands that the receiver uses it. In this case important information can be untouched for a

long time. (Jacobsen & Thorsvik, 2008)

At the same time an information overflow can lead to individual problems like stress, losing

control of the daily activities and losing the holistic perspective. Therefore it is important to

establish a communication with the right amount of information for controlling the activities

that should be treated and in the same time not losing control due to too much information

(Ibid).

3.6.2 Information sorting techniques

Today managers are overwhelmed by available information on which to base decisions on. It

is important that unnecessary information is sort out in order to let the manager work

effectively. Harwood (1994) describe John F. Rockarts list with five different approaches of

how to manage an information flow.

By-product technique: The information that is gained from this technique comes from the

systems that are required for the daily work and the routines of processing information and

papers. The disadvantage with this technique is that the requirements from the mangers might

not be defined or obtained.

21

Null approach: State that managers ignore information from formal structured sources and

instead rely on soft information sources which have to be developed and taken care of.

Key indicator system: A selection of key indicators should be done on which managers can

run the business. A system for highlighting indicators that are outside the parameters that has

been stated should be attendant. This will let managers focus on the key indicators and just

processing the other indicators when something is happening.

Total Study Process: A “top down” analyze. Managers and staff are interviewed in order to

find their environment, goals, important decisions and their information needs.

Critical Success Factor approach: A combination of the methods mentioned above. Interviews

with managers are necessary in order to establish which areas in the organization that is

essential so they always go right. When these areas have been established quality information

from these areas must be provided in order to let the managers have their focus here. There

are similarities with this approach and the Key indicator system but the Key indicator system

is more focused on financial figures. The Critical Success Factor approach supports

managers´ need for soft information. (Harwood, 1994)

The CSF approach is not only suitable for top management it can also be applied for

department managers in order to support their goals. This approach will be beneficial for the

information flow because it lets the managers concentrate effectively on the information that

they need for their tasks (Ibid).

3.6.3 Communication channels

Depending on the information that is sent various requirements are needed. There are three

points to account for: The channel might be inappropriate for the information that is sent and

important information can fall out. The channel can limit the ability to state a two way

communication which can be needed. If many actors have access to the channel manipulation

and alteration of the information might occur. This is occurring in vertical information

channels where the information travels between different levels of hierarchy (Jacobsen &

Thorsvik, 2008).

3.7 PDCA The PDCA cycle, or Plan-Do-Check-Act, is a working methodology developed by W.

Edwards Deming who was a great contributor to the field of quality and quality improvements

(Foster, 2007).

The PDCA concept has its roots in statistical process control (SPC) and was developed to fill

the need for improving product quality. It is based upon Walter A. Shewhart´s method called

“The Shewhart cycle”. Just like Deming´s PDCA this was a method for improving product

quality. However the Shewhart cycle consisted of a six steps process while the further

developed PDCA consists of only four. The definitions of the four steps are shown below:

Plan – This stage is supposed to determine all the objects and processes that are

needed in order to meet both the customer´s and the company´s requirements.

22

Do – Work with implementation of the processes.

Check – Monitor and measure the processes and compare them with the objectives

and requirements that were set in the first step. The results are then reported.

Act – Take the actions needed to maintain continuous improvements of the

performance. (Manuele, 2008)

Fig 3.7 PDCA cycle

In Fig 3.7 PDCA cycle above shows how the four steps of the PDCA cycle are connected. As

the PDCA is a method for continuous improvements it is important to keep working with it all

the time. Good results will not be reached if only one PDCA cycle is performed. What to do is

to perform a PDCA cycle and then keep working with the improvements by performing

another cycle after the first one is finished. As things may change new things to work with

may be discovered when performing the second cycle, things that were not seen the first time.

Therefore it is important to perform the PDCA cycle repeatedly, remember that quality

improvement is a never ending cycle (Pascal, 2007).

An important thing to keep in mind while working with quality improvements is never to take

anything for certain. Things are not always exactly as they appear to be. Therefore you need

to ask yourself the right questions and check everything thoroughly to get a valid picture of

the situation. This counts for all the stages in the method. For example in the “check” phase

there are several questions to overlook. For example: whom to check with, what to check,

when to check, how frequently to check and in what manner to check (Ibid).

Later on Deming decided to change the PDCA cycle to the PDSA cycle where he changed the

“check” act to a “study” act. This was made because he felt that the word “check” seemed

more related to someone standing next to the process and checking it than actually studying

and monitoring it. Anyhow the main concepts where kept and the cycle is carried out in the

same way as before (Manuele, 2008).

Plan

Do

Check

Act

23

3.8 Cause and Effect Diagram Cause and effect diagrams or better known as Fishbone diagrams is a tool for starting problem

analyzes behind root causes. This is a good starting point for further analysis. When using this

tool it will be easier to narrow down the problem. There are different categories to consider

when finding the causes behind the problems that are analyzed. The categories are people,

process, technology, equipment, material and environment. As an input to the diagram there

should be a question e.g. why do we have a problem with...? As shown in Fig 3.8 Cause and

Effect Diagram. From this question possible reasons behind the problem will occur. On each

category there are lines on which causes should be written. It is important that the members of

the discussion have a good imagination in order to populate the diagram. Important to

remember is that the causes found from the analysis are not always the real root causes behind

the problem that was discussed (Goldsby & Martichenko, 2005).

Fig 3.8 Cause and Effect Diagram

3.9 Interaction between raw material inventory and production In order to get a cost effective raw material inventory management system there should be a

strive for maximizing the use of the layout, protection from damages, accessibility of the

materials, ability to locate materials, reduction of administrative costs, and the use of

equipment connected to the raw material inventory (Tersine, 1994).

The faster and the higher quality the information has from the production department the

higher can the utilization grade be in the inventory. With adequate and up to date information

the purchaser can control the levels in the raw material inventory. This will minimize the risk

for errors and material shortages (Ballard, 1996).

In order to obtain a cost effective inventory management the holding cost should be as low as

possible. This means that the insurance-, handling-, deterioration- and ageing cost should be

minimized (Tersine, 1994).

24

The stock out cost is also connected to the inventory cost effectiveness. When stock out occur

the production department cannot continue the production which leads to profit loss from lost

production and delay of completing (Ibid).

3.10 Inventory management system and cost effectiveness

When working with improving the inventory management system a company should strive to

utilize the inventory, as well as the resources, in the best way possible (Ballard, 1996).This is

done in order to increase its cost effectiveness which will save money. By looking over the

existing inventory layout it might be possible to find ways to improve it with professional

space planning in order to increase the utilization rate while still using the same resources

which will lead to a greater profit. The resources necessary to carry out the work might

already be in place, but the utilization rate may be low. In order to increase the inventory’s

cost effectiveness, maximizing the utilization of the resources is to strive for (Williams,

1996).

25

4. Model development In this chapter the model is presented and there is a description of what was used in order to

develop the model. There is also an explanation of the different steps and why they have been

chosen.

Fig 4 Raw material inventory management model

The model that has been developed is showed above in Fig 4 Raw material inventory

management model and consists of six steps.

At many companies there are many different raw materials used and most of them are stored

in a raw material inventory. There are often different critical items in the inventory and there

can be an amount of items that can be hard to handle at one time. Therefore a method for

sorting them will be required. The ABC-analyze has been chosen as the tool for sorting the

different items in the raw material inventory. With this method knowledge of which items

should be focused on first will be available. This tool will also be used after the model´s first

cycle is finished in order to find season variations. At different seasons or in the future the

demand can change. Therefore can the ABC-analysis find if the right items in the raw

material inventory still should be in the A-group or if new items should be placed there

instead.

The ABC-analyze will not give enough information for starting to find places in the raw

material inventory. It is not only important to know which the most important items are, it is

also important to establish the relationship between the items in the raw material inventory

and also the relationships to the next step in the production that the items are going through.

When all the relationships are established between the items that are processed in the model

the placement can start. The tool chosen for establishing is the relationship chart. It has been

chosen due to that it can handle different degrees of interactions and with this knowledge it is

possible to prioritize the items against each other in order to find which items should be

26

placed nearest each other. In this step it is possible to see the connection with the 5S strategy

where each item should be set in order and stored so they are near the user and easy to find.

The fishbone diagram has been chosen as a tool to identify possible causes of errors within

the information flow. Different causes that the diagram process are related to people,

technology, environment, material, equipment and process. This is done in order to find what

is missing and what to focus on when making improvements in the information flow.

In order to have control over the raw material inventory it is not enough with a time efficient

layout. It is also important to have control over the inventory levels of each item. Therefore

the purchaser must have information about the levels in the raw material inventory. If the

purchaser misses something in the process it is preferable to have a method for support in

order not to run out of stock. In the theory are different approaches for sorting information

mentioned and the ones that are chosen are the Total Study Process and the Key indicator

system. Total Study Process has been chosen in order to find the right information necessary

for the purchaser in order to fulfill the functions connected to the role. The Key indicator

system is chosen in order to let the production department support the purchaser. The

production department has experience of which items in the raw material inventory that never

should run out of stock and when they see that the levels are below regular the purchaser can

be contacted.

In order to fulfill the needs for the information flow it is not enough to sort out which

information should be used. The right communication channel is also important to find in

order to let the information travel fast between the departments. The risk of old information,

manipulation and misinterpretations has to be minimized. In order to minimize the risks the

receiver should be able to choose the information channel.

The model should be an ongoing process due the changes of the product demand that happens

over time. In order to ensure that the right items in the raw material inventory are in the A-

group the PDCA-cycle has been chosen. This is shown in Fig 4 Raw material inventory

management model with an arrow from step six to step one.

The connection to the 5S strategy is made on two additional points than what is account for

above in the text. With the model will the work for raw material inventory improvements be

standardized and the description gives the possibility to perform the task in the same way

independent if it is the same personnel that performs it at different times. When the cycle of

the model is made time after time it will help to sustain the improvement that has been made

and even more improvements can be found.

As shown in Fig 4 Raw material inventory management model the model consist of six steps

where an analysis has to be made in each step.

In the first step the most important items in the inventory which contributes to the material

flow have to be found. The focus is put on material flow and not on the value of the items

since the purpose of the model is to optimize the layout and the material flow in the raw

material inventory. With help from the ABC-analysis it is possible to find the most important

27

items and they will be placed in group-A. The items and the consumption of them should be

in an accumulating list. This will make it easy to see the items and how much they contribute

to the flow in relation to each other. In the case of the report the limit of 80 % of the material

consumption have been set for group-A, important to remember is that this limit is not fixed.

In some cases 80 % might not be enough due to the number of items in stock. For example if

the result of the ABC-analysis will be a small number of items it is suitable to raise the limit

in order to optimize the layout and flow for more items. With too many objects it will be hard

to overlook the connections between all the items and the machinery that they are connected

to, try not to involve all of the items.

The facility is one of the most expensive assets companies have, a high utilization rate is to

strive for. In order to utilize the inventory layout as much as possible the second step of the

model has to be made. In this step the connections between the items in the inventory and the

machinery that are in the first step of the production should be established. In order to make

this easier to analyze and overlook, the Activity relationship chart has been chosen as the tool

to help. In this case the machines have been placed on the top rows of the chart and afterwards

come the items from group-A in the ABC-analysis. The items are not only connected to the

machine that they are going through but also to the other items in the inventory. The items

that have the same machine in common should also stand close to each other in the inventory

in order to make it easier for the operators to find them. In this case it was also possible to

consider more than one machine for the items in stock. Due to that it is possible to cut some

of the glass types in more than one machine if necessary. This is important to take in

consideration if a breakdown will occur or if the preferable machine is overloaded with work.

Then it is preferable if the machine is reachable even for the other materials.

The following relations are based on the theory in part 3.5 Inventory layout. The connection

between the item and the machine is given an A due to that this connection is more or less

what makes the material flow efficient. The connections between the items that have the same

machine is given an I because they should stand close but it is not as important as the A

classification. It is possible to ignore this connection if the inventory will not make it possible

to place them nearby. U is given those items that do not have any connection between each

other or to the machine.

In the third step a layout of the raw material inventory is made with respect to the relationship

chart. The glass plates with the same glass codes should stand together in order to let the

operators find them easy and to let them see the inventory level of each glass code. If the

operators see that the inventory level is lower than preferable they can contact the purchase

manager in order to highlight that glass code. In this step it might be necessary to revaluate

the position if the inventory will not allow different items to stand nearby each other.

Although the items that have been given the A classification in the relationship chart should

stand nearby in order to make the model work. If not possible to place those according to the

relationship chart, common sense has to be used in order to find a possible layout for the

items that have constraints with the buildings´ layout.

28

In the fourth step should a fishbone diagram be made in order to identify errors and flaws in

the information flow. These errors and flaws are then treated further in step five and six. All

the actors in the information flow should be present while performing the diagram in order to

get as many perspectives as possible.

In the fifth step the purchase manager and the inventory manager should be interviewed in

order to find out which information is necessary for them to accomplish their work.

Remember that too much information is just as bad as too little. The tool that is used in this

step is the Total study process. In this case the product code of what has been consumed and

the size/quantity has been chosen. In other cases it might be necessary to have more or

different information sent from the inventory manager to the purchase manager. If possible

the inventory manager can help the purchase manager by implementing a Key indicator

system in which the inventory manager will contact the purchase manager when one of the

items fall outside of the parameters that have been set for the levels in the stock.

In the sixth and last step the best suited communication channel should be found. Try to let

the information travel through as few hierarchy levels as possible due to the risk of alteration

and manipulation. The channel should be fast and on a two way communication basis so the

receiver fast can contact the sender in order to minimize the risk of misinterpretations. The

receiver should be the one who has the last word when it comes to decide which channel to

use.

In order to sustain the improvements that have been obtained by the model it is important to

work with the PDCA approach. The idea is not that the steps should be repeated continuously

without interruption but instead when new raw materials have been added to the list of raw

materials or when the customer demands have changed to other raw materials, then it is

appropriate to start with step one in order to find out if there have been any changes. If there

were changes the other steps should be made again in order to find the most effective

inventory layout. Step four to five may not be necessary to carry out each time but they can

lead to find flaws in the information flow that has been established. It depends on if the new

raw materials are of another character that demands special information to flow between the

inventory manager and the purchase manager.

29

5. Empirical findings In this chapter there is a presentation of the case company used. The data used for testing the

model is also shown and explained in the chapter.

5.1 Company description The case company that has been used for the case study is Emmaboda Glas AB. The company

was founded 1919 under the name Emmaboda Fönsterglasbruk in Emmaboda. In 1974 the

company was bought by the Saint Gobain group. The number of employees is approximately

225 and the turnover is 400 million SEK. The product that they provide is refined glass

mainly from the Saint Gobain Group. Mostly plain glass is provided. The treatments that are

made are cutting into different sizes and shapes, grinding, painting and the main products are

fire protective glass solutions made by injecting gel between different glass layers.

5.2 Description of raw material The raw material that is used in the production is glass plates in different sizes. The sizes that

are covered in this report are the ones that are called Jumbo plates. The dimensions of these

plates are 3210 mm times 6000 mm. Today approximately 250 different types of plates are

used. The plates vary in thickness, transparency, color and other properties.

In the cutting department there are four different cutting tables of which three are used. The

fourth is going to be sold which will give extra room for inventory. The tables are cutting

different types of glass. Cutting table number one cuts the glass types which are five and six

millimeters thick. Cutting table number two cuts laminated glass types and the third table cuts

the remaining glass types, which includes all glasses from three to fifteen millimeters thick

except the five and six millimeters as well as the laminated glasses.

5.3 Inventory layout The plant consists of two buildings, one office building and one building where the

production is located. The production building, which includes loading bays, covers the

majority of the plants area. This is the building where all the glasses are delivered, processed

and all the finished products are shipped out.

In Appendix 1 is the layout displayed for the cutting department and the raw material

inventory. The scale on the different objects is not correct therefore it seems hard to fit the

objects that are marked in the picture. In the upper left corner are the cutting planner’s office

and a storage place for seventeen trolleys, they are not placed on the picture due to the scale.

The trolleys can be seen in the upper right corner were the incoming goods arrives. They are

market as yellow in the picture. There are three cutting tables with different appearances, the

cutting table for five to six mm glass plates is placed to the right and it is marked as red with a

yellow loading part, the cutting table for laminated glass plates are the one in the middle

which is marked as green and to the left is the cutting table for three to fifteen mm glass plates

which is marked as red. When the cutting tables are running there are place for two trolleys on

which the glass plates are loaded before they enter the cutting table.

30

When the glass plates are delivered they are stored into the raw material inventory waiting for

further processing. From this inventory they are loaded to one of the three cutting tables to be

cut into smaller plates which match the products on the orders. After the cutting tables the

plates are sent to the next part of the production building for further processing. Except from

the cutting department the production area consists of different departments for grinding,

hardening, painting, special procedures for making fire protective glass and packing/shipping.

Note that all the glass goes through different processes depending on what they are going to

be used for. Some of the glass types are only going through two or three processes while

another glass type might go through four or five.

Today the storage layout is quite compact and some of the trolleys are even standing in a

second row behind other trolleys which means that the operators need to move the first trolley

to be able to get them out.

5.3.1 The new storage area

Since the company does not have the need for the fourth cutting table they try to sell it. When

it is sold there will be an empty rectangular area of about 10.7m X 30.7m, which equals about

327 sqm. This area will be used as a storage area to increase the capacity and enhance the

material handling in the storage.

5.4 Description of the raw material inventory When the plates are delivered to the factory on trucks they are placed in automatic storage

racks or on trolleys. The racks are adjustable when it comes to how many plates each rack can

handle. By sliding the racks they will open up and a gap big enough for a crane will be

exposed. This storage has room for 60 racks. There are also trolleys in which the plates are

stored, each trolley has two different sides where glass plates can stand. The trolleys are also

necessary at the cutting tables for loading the tables. In the inventory there are 34 trolleys

which are stored at different locations. When the plates are transported to the cutting table the

workers have to load the trolleys with plates if the plates were stored in the racks and later put

them next to the cutting table. Storage in the racks requires more steps in the loading process.

The cutting tables are placed next to the raw material inventory which opens for an effective

material flow to the cutting department. The layout of the raw material inventory is shown in

Appendix 1.

5.5 Information flow of Jumbo plates consumption When incoming delivery of plates arrives the waybill will be sent to the inventory controller.

On the waybill there is information about the amount of plates and what kind of glass type it

is. In the production, when plates are consumed or broken, there is a form that will be filled in

each day of the actual consumption, these forms are connected to the orders that are made by

the production planner. The forms will be taken from the cutting department by the inventory

controller. When the inventory controller has the forms he will update the inventory status so

it is available up to date for the one who is responsible for ordering the raw material. When

the consumption is registered in the system it is in the form of glass plates. The system will

automatically convert the plates into square meters. This status is now available for the

31

purchaser that is in charge of making orders of the raw material. The information flow is

graphically displayed in Fig 5.5 Information flow.

Fig 5.5 Information flow

Somewhere in this information flow there is a source of error. Each month the inventory is

made and the result is not the same as the one that the purchasers have in their system.

Therefore it is updated with the actual amount at the end of each month. Some factors that can

have an effect on the data quality from raw material consumption are: late delivery of the

forms from production, forms disappears, changes of glass types without noting it in the

forms and the human factor.

5.6 Consumption sheet When the cutting department has finished the cutting of a specific glass type they have a sheet

that summarizes all of the batches and their total consumption. The sheet is used in order to

make sure that the consumption is registered to be able to keep track of the inventory level as

well as the waste due to optimization.

On the sheet there is information about the glass type, number of batches, used stock plates,

glass volume and waste due to optimization etc. The consumption sheet can be found in

Appendix 2.

The work of the cutting department is divided into different groups depending on what raw

material it needs. For example, when loading the cutting machine with 4 mm glass they need

to process all the batches with 4 mm, which are supposed to be processed that day, before

they unload and reload the machine with a different glass type. This is done to save time due

to the changeover time for the cutting machine. When all the batches are finished they check

the sheet to make sure that the “number of stock plates taken” is the same as the actual

number of plates used. If everything is correct the sheet needs no further adjustments.

Cutting department

•Plate consumption registered in whole plates on the consumption sheets

•Incoming deliveries registered in sqm.

Purchaser

•Purchasing to keep inventory level

Inventory controller

•Updates the inventory status

Inventory

•Inventory made monthly

32

However if the actual number of plates used differs from the number on the sheet, or if the

glass type has been changed, the sheet is corrected by the operating personnel in the cutting

department.

33

6. Model testing In this chapter the model is tested with the data collected at the case company. This is done in

order to make sure that all the steps necessary for performing the model of the raw material

inventory management are applicable at a real case.

6.1 ABC-analysis Since the case is working with raw materials that are processed into products it is preferable

to sort them with respect to their usage/consumption instead of dollar value. In this case the

articles that are consumed most are also the ones that are transported to the production most

frequently. For the case it is more important to see what materials the case company uses the

most and to take that into consideration while planning the inventory to minimize the

transportation and time consumation instead of considering their prices. The materials that are

used the most are preferably located as close to the production as possible to optimize the

material handling. By the ABC-analysis all the glass types are divided into three different

groups which are named A, B and C where group A consist of 12 articles which counts for

80.60% of the total consumption. Group B consists of 31 articles which counts for 15% of the

total consumption. The list of group A, B and C is provided in appendix 3. The dark green

glass typs are group A and the light green is group B. Group A and B are equivelent to 95% of

the production. It is only group A that will be treated further in the model due to the limited

time. When more time is availible it is possible to optimize the raw material inventory layout

for all the items using the model.

6.2 Relationship chart The group A from the ABC-analysis is taken to the relationship chart together with the cutting

tables in order to find the different relationships not only between the glass types but also

between the cutting tables they are connected to. As a result from the relationship chart the

most important relationships are highlighted and therefore the connections between each glass

type and the cutting tables are identified. This will help to place each glass type close to the

cutting table that is most frequently used for that glass type.

The highest runner at each cutting table has been market with an A (Absolute important to

have departments connected) in Fig 6.2 Relationship chart below. Depending on the material

flow for the other glass types that are connected to the same cutting table they have been

given an A (absolute important to have departments connected). The glass types that are

connected to the same cutting table have been given an I (important to have departments

nearby each other) in relationship to each other. This is done for grouping the glass types that

are going through the same cutting table in order to find them easier in the raw material

inventory. Depending on the thickness or if the glass plates are laminated they are connected

to a particular cutting table, but it is possible to cut the plates with a thickness of five to six

millimeters in the table for three to fifteen millimeters and vise versa. It is only the laminated

glass plates that must go through the table for laminated glass. Therefore the non laminated

glass types have been market with an O (ordinary departments should be conveniently near)

as relationship with the cutting table that is dedicated for the other thickness class. This is

done due to that it is important to keep in mind that if breakdown or overload at a table occurs

34

it is preferable to have the glass palates placed in a way that they are fast reachable from the

other tables in order to save time.

Fig 6.2 Relationship chart

Description of the letters in Fig 6.2 Relationship chart:

A - Absolute important to have departments connected.

I - Important to have departments nearby each other.

O - Ordinary departments should be conveniently near.

U - Unimportant if departments are apart.

6.3 Inventory layout

The result from the relationship chart will be a classification where every glass type is stored

as close as possible to the devoted cutting table. This will help to minimize the time for

changeovers due to that less transportation is needed. The glass types that are most frequently

used will be placed nearest the cutting tables.

In the current raw material inventory the glass types from group A are placed as shown in

Table 6.3.1 Glass types locations below. Due to that the different glass types are going

35

through different cutting tables they should be placed as close as possible to the cutting table

that they are most frequently being transported to.

Table 6.3.1 Glass type’s locations

As a result from the data of group A that has been put into Fig 6.2 Relationship chart the most

important relationships between the glass types and the cutting tables where provided. Based

on that information a list was made where new locations were set for the different glass types

with respect to how important their relationship to each cutting machine is. These locations

are set in order to minimize the transportation and meanwhile increase the accessibility. The

list is shown below in Table 6.3.2 New locations of the glass types.

When compared with Table 6.3.1 Glass type’s locations, seven glass types have been moved

to another position than their original. These seven glass types will now be as accessible, if

not even more accessible, than before while less transportation is needed in order to load them

to the machine that they are most frequently used in.

Table 6.3.2 New locations of the glass types

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6.4 Fishbone diagram As shown in Fig 6.4 Fishbone diagram below an analysis has been done in order to find

possible reasons behind the root causes of errors in the information flow.

Fig 6.4 Fishbone diagram

In the People bone, error of input has been taken up because it is possible that wrong glass

types and quantities have been marked on the consumption sheets, also that the cutting

department forgets to put information on the sheets when changes have been made regarding

used glass types. The information on the sheets can also be interpreted in the wrong way

which leads to that the inventory controller puts the wrong information into the system. This

can result in wrong inventory levels which can lead to that there will be too few or too many

items in inventory. With too many items in the inventory the customer demand might not be

equal to the consumption which may lead to deterioration and ageing if the inventory level is

too high. If the inventory level is too low it can lead to production stoppages due to material

shortages. Incorrect document handling refers to that it can take long time for the sheets to

travel between the departments and sometimes they can be lost in the handling.

In the Technology bone the lack of computerization has been brought up due to that today is

most of the document handling manually performed which can lead to low availability of the

documents and manual handling will take longer time than computerized handling. In digital

form the possibility of losing the document will decrease.

In the Equipment bone lack of equipment in the cutting department has been brought up due

to that there is no possibility for the cutting department to make corrections directly in the

inventory system.

In the Process bone one way communication is brought up due to that the current process only

allows one way communication between the actors. Many actors in the channel at different

levels make more room for mistakes and misinterpretation.

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6.5 Information sorting It is important that the resources are used in the most effective way, both when it comes to the

human and the material, therefore a high quality communication has to be established. In

order to get a high quality communication it is important to manage the flow of information

and try to optimize it in new ways that suit the receiver. The information quality today is not

of high quality due to different sources of errors such as late deliveries of consumption sheets,

sheets disappears and misinformation on the sheets. A fast and exact information flow is

essential in order to utilize the inventory layout and the resources within it as much as

possible.

6.5.1 Information overflow

It is important to have the right amount of information and only the information that is

necessary for the receiver in order to carry out the work. Interviews have been carried out in

order to find out which information is needed. The only information that the inventory

controller needs is the amount of plates that comes in to the inventory and which glass type it

is, this information comes from the waybills when the delivery trucks arrive. When it comes

to outgoing raw material from the inventory, the inventory controller gets information from

the consumption sheets (seen in Appendix 2) and these sheets have much more information

than necessary for performing the work. Unnecessary information should be sorted out in

order to let the inventory controller work effectively.

At the consumption sheets the information necessary for raw material consumption should be

included. In the list of fixed information in 3.1.2 the necessary points to account for on the

consumption sheets are the product code of what have been consumed and in which

size/quantity.

At the loading of new material to the inventory there should be information from the list of

fixed information. It is important for the personnel to know where to store the incoming

material in order to place it in the most time effective place in relation to the consumption.

When the material has been placed in the preferred storage area the production department

will have knowledge about the location of each unit load. Today there is no such information

available therefore an analysis of the plates´ connections to the cutting tables has to be made

in order to find the best places for each glass type.

6.5.2 Information sorting technique

In order to make the daily work easier for the purchase manager a Key indicator system could

be implemented with support from the inventory controller. This system should be

highlighting indicators that are outside the parameters which will let the purchase manager

focus on the key indicators. In this case that means that the inventory controller will make

contact with the purchase manager when one of the glass types gets outside the parameters

that are set for the level of inventory.

6.6 Information channel Today the consumption sheets travel from the production optimizer, the cutting department to

the inventory controller on a one way communication basis. The sheets also travel through

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different levels of hierarchy which can be a source of alteration and manipulation. In Fig 6.6

Information channel below a graphical explanation of the information channel is made which

is based on the last step of the model.

Fig 6.6 Information channel

6.7 PDCA The PDCA approach will make sure that all the steps in the model are carried out in a

structured way that includes work with sustaining the improvements. In this way there will be

a well structured way to work with the improvements which might help to organize the

workforce but it will also help to work and implement the improvements in the right way.

Because the PDCA is an ongoing process it will help the user of the model always to have the

right items in the inventory to focus on. The items that are placed in the A-group in the

accumulated list might not be suited there in the future. Therefore the PDCA approach will

help always to have the different steps of the model updated.

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7. Results In this chapter is the result presented from the model testing. How well the model was

applicable in the case and what to account for.

7.1 Results from the model testing The result from the case on which the model was tested is:

A new raw material inventory layout.

A new information flow regarding the raw material consumption.

The new layout will improve the accessibility and minimize the transportation time of the

trolleys. The result of the new placements in the raw material inventory is shown in Table

6.3.2 New locations of the glass types and the names of the storage places are shown in

Appendix 1. The glass types have not been given a specific place in the different storage

places due to that it is better for the operators to choose which place in each storage place is

the most accessible for the operators to use. A variable that is hard to handle is e.g. how easy

each place is to maneuver the trolleys in. The nearest place might not be the fastest place to

use. It is meant that the glass types should have a fixed place in the raw material inventory

which they should use until the next cycle of the model have been completed.

The result from the new layout will be minimized change over times due to the shorter

transportation distances and it will be easier to locate each glass type.

Less actors and hierarchical levels.

The new information flow shown in Fig 6.6 Information channel from the model will involve

less actors and hierarchical levels which will decrease errors related to the human factor. The

time for information to travel from the sender to the receiver will be faster due to that the

middle hand will be erased. When questions appear for the purchase manager it is needed to

use e-mail or phone in order to get direct contact with the actor responsible for putting the

information in the raw material inventory system. This will lead to a two way communication.

The result from the new information flow will be faster due to a shorter information channel

and the information quality will also be raised due to minimized risk of misinterpretations.

7.2 PDCA When working with improvements in a raw material inventory there are many different ways

to work with the improvements that are to be implemented. It is important to implement

improvements in a way that suits the specific case that are being worked with. One of the

most important things in this process is to establish a plan for continues work after the

implementation in order to make the results sustainable. A good method that takes all these

things into consideration is the PDCA approach. By using the principles of PDCA cycles that

are performed over and over again it will make sure that the inventory is frequently checked

for any changes and that the improvement work is performed as an ongoing process which

will make sure that any possible improvements are identified and also sustained after the

implementation.

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8. Conclusions In this chapter are the conclusions presented regarding benefits when implementing the

improvements from the case, what to consider with the model and what can be improved.

8.1 Conclusions of the model testing The benefits with the new raw material inventory layout are shorter transportation distances

which will lead to faster change over’s, the accessibility will also be improved and it will be

easier to locate the glass types.

The benefits with the new information flow, compared to the existing one, is a shorter

information channel which leads to faster updates in the raw material inventory system and

that misinterpretation will decrease due to that the person who makes changes on the

consumption sheets also is the one who is responsible for entering them into the raw material

inventory system.

8.2 Conclusions regarding the models´ applicability The model was well applicable on the case and data gathering was possible for all the steps

regarding the inventory layout. Data gathering was also possible for the steps in the

information flow except data gathering for material consumption for a longer period than six

months which was needed in order to establish a key indicator system due to season variations

in customer demands.

The model has a structure which makes it easy to carry it out since the different steps are built

on each other and the information gained in one step is used in the other.

Due to time limitations the cycle has only been performed one time and in the following

cycles, after the improvements have been implemented, more improvements can be found that

have been missed the first time. By working continuously with the model it is possible to

assure that the right items are focused on.

The data required for performing the model is easy to find and should be available at most

producing companies since it is practically based upon purchase figures, consumption figures

or sales figures if they are possible to trace back to the raw materials in order to know which

raw material was consumed.

The model can be used in order to optimize the raw material inventory layout for a chosen

target group and if the group contains too many items it can be hard to achieve good results.

The model is applicable in cases where a limited amount of raw materials are used. If too

many different raw materials are used it would be hard to find the ones which are not stored

next to the machine that are processing the raw material. It will be hard to know in which

order the materials are stored due to that the model is based up on the consumption figures

which will lead to a placement in the raw material inventory that is directly connected to

consumption. Then it would be preferable to use another system as well e.g. to store the raw

materials that are used less frequently by article number.

41

The model will improve the raw material inventory management in a cost effective way by

reducing production stoppages related to material shortages. It will also make it possible for

change overs to be carried out faster as the accessibility is improved and the transportation

distance of the raw material is minimized.

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9. Recommendations In this chapter will recommendations be given to the case company and for users who will

perform the model on other cases.

9.1 For the case company We recommend the case company to use the model and make new calculations as the ones

provided in this thesis are based up on figures from November to March and there might be

changes in customer demands which will lead to that other raw materials should be placed in

the group A in the ABC-analysis.

We also recommend the case company to look over a system to calculate how much space is

required for each glass type. For example 5mm Planilux is consumed more than the other

glass types and therefore it should be given more space in relation to the others. Another thing

to account for is also the level of safety stock when calculating the space required in the raw

material inventory.

Regarding the information, if following the information flow developed in this thesis it is

important to educate the cutting department personnel in the grade of importance to use the

raw material inventory system in the right way. If wrong information is entered into the

system the purchaser will have misguiding inventory levels which the purchases are based on.

9.2 For users Depending on the raw materials that are used the model can be modified in different ways. If

the raw materials are ageing and deteriorating fast there might be a need to include the dollar

value in the ABC-analysis in order decrease the costs for unusable materials. The tools chosen

for the model can be changed in order to fit specific cases better.

Depending on how the existing information flow is established there are different possibilities

to make improvements and changes. The level of actors involved in the information channel

should be considered and each actor should be interviewed regarding the degree of

information needed to perform their tasks and which goals they have.

9.3 Model improvements In the model are only the movements accounted for which will lead to improvements

regarding time and distance for transportation within the raw material inventory and to the

first step of the production. A possible improvement for the model is to account for the dollar

value of the items when performing the ABC-analysis. This will let the items with higher

value move up in the accumulated list, e.g. if materials that are stored are ageing and

deteriorating fast. In this thesis this has not been considered due to that the focus has been on

optimizing the raw material flow in the raw material inventory. Another improvement would

be to develop a step in the model in which reorder points are calculated in order to find the

most economic stock levels and which items should be in stock.

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Appendixes Appendix 1

The appendix below shows the layout for the cutting department and the raw material

inventory.

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Appendix 2

The appendix below shows the material consumption sheet.

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Appendix 3

The appendix below shows the A, B and C group from the ABC-analysis.

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Institutionen för teknik 351 95 Växjö tel 0772-28 80 00, fax 0470-76 85 40