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Project Objectives
Work Towards Achieving Mayor Richards City Goals -Safe City -Quality jobs -Improved customer service - B.E.S.T. Demonstrate how Lean Six Sigma Improves Customer Service and Saves Resources
Project Description
Street light inventory seems excessive relative to usage
Problem Statement:
Objective:
Benefits
Frees capital funds to be redirected towards other use and helps maintain low taxes
The Y
Y = f(x1,x2,x3,,xk)
Definition of the Y
The Defect: excessive street light inventory The Y: the total value of street light inventory, measured monthly
Y = f(x1,x2,x3,,xk)
The Project Plan: examine the factors that drive inventory levels on various items and appropriately reduce the level of individual street light items The Goal: Reach optimal levels of inventory to reduce the invested capital
Project Team
Champion: Greg Meszaros
Assisting:
Team Members:
Project Schedule
Define
Measure Analyze Improve Control
Number of Street Lights (Approx) Number of Alley Lights (Approx) Energy Expense, 2003 Department Expense, 2003 Estimated Value of Network
Process Map
Materials Ordered
Materials Delivered
Materials Stored
Materials Depleted
Effect Matrix
6 4
10
Process Step Process Inputs needs determined materials delivered materials depleted budget availability time, order to delivery materials requested by maintenance crews materials requested by construction contractors past usage considerations staff inventory experience
pleasing aesthetics
10 0
Total
1 2
5 10
10 5
5 10
195 190
10
185
10
159
5 6
10 10
5 5
1 1
0 0
145 145
Important Factors: demand, lead time, order interval, level of safety stock
historical usage data is not maintained and monitored inventory usage is not recorded by maintenance crews material usage is not recorded on work order tickets expensive in-stock items are substituted for out of stock items vendor states inaccurate delivery time on bid poor analysis done in budgeting cycle
budget expenditure
In May of 2003, the inventory budget was reduced by $100,000 in anticipation of project success. Approximately $80k less was spent on materials than modified budget would have allowed for 03. Estimated savings to date (March 04), $180,000.
Has All the Data Been Captured? Has all data been captured?
Actual material expense 2001 Actual material expense 2002 Actual material expense 2003 thru 9-30 Total $636,865 $584,287 $320,199 $1,541,351 $966,547
$630,806
*Note that recorded usage does not total the amount expended
Has All the Data Been Captured? Has all data been captured?
All recorded historical usage was collected
Work orders Re-lamping lists Proactive maintenance files Capital project files
Historical inventory values were not kept. It can not be determined if some usage was not recorded or if the differences shown on the previous slide are attributable to changes in the value of inventory on January 1, 2001 as compared to the value of inventory on September 30, 2003. What can be done to insure data integrity, going forward?
Keeping
*For 2003, Street light inventory turned only .66 times *For 2004, Street light inventory turned 1.124 times
*Value of items not previously accounted for totaled $26,581 or 4% of inventory on hand as of Oct 21, 2003
96%
Accuracy Benefits Enhance Customer Service Reduce Stock Outs Production is not jeopardized
Inventory Accuracy
Past: Historically, a physical inventory count was conducted once per year. Accuracy statistics were not maintained, and the existing stock record was over-written with updated counts. Effective 2004, implemented Cycle Counting
Current: Inventory items are now differentiated and counted multiple times per year, depending on usage-value (inventory classification)
Class A items, count 6 times/year 80% of $ spent over 33 months Class B items, count 2 times/year 15% of $ spent over 33 months Class C items, count 1 time /year 5% of $ spent over 33 months
After annual 2003 inventory count, error rates were established. An error occurs whenever an item count differs from the inventory record, while considering +/- 5% as an acceptable tolerance. Class A items 27.3% error rate Class B items 35.7% error rate Class C items 26.1% error rate All items 27.3% error rate, 12-31-03 Error rates will be tracked with control charts, going forward. If the use of the inventory data base and the implementation of cycle counting fail to improve this error rate, this problem could be investigated further as a Green Belt project.
Proportion
Proportion
Proportion
0.25
_ P=0.245
0.20
0.15 dec03 Sample 5% allowable tolerance Tests performed with unequal sample sizes
LCL=0.1531 dec04
Count
100
60 40
50 20 0
143 item numbers 19.18 % of dollars expended 22 item numbers 80.82 % of dollars expended
($185,430)
($781,117)
Most of the project effort and analysis will be directed at the 22 items comprising 80% of the expenditures. These top 22 items are designated as class A items.
Percent
item #
14-120 14-105 16-200 13-503 16-400 14-151 17-205 13-504 16-209 16-210 18-116 14-122 16-100 14-203 14-106 16-410 14-131 16-291 14-205 14-107 16-213 14-500
description
100w HPS Town & Country fixture 150w cobrahead fixture 30' embedded aluminum pole 100w HPS bulb 16' black metal pole 100w alley fixture #6 3 conductor uf 600v tray cable 150w HPS bulb 30' aluminum bolt down pole 35' aluminum pole single bracket 1 1/2" pe tubing 250w HPS Town & Country fixture 35' wood pole 250w HPS power door 250w cobrahead fixture Fort Wayne standard post 100w PMA fixture transformer base, small 750w power door 400w HPS fixture with photo cell 35' bronze painted aluminum pole 300v photo cell
Poles Used: Jan 2001-Sept Poles used: Jan 2001 Sept 2003
$ ranking 33 months 3 5 9 10 13 16 18 21 23 24 29 39 41 47 52 56 61 74 75 76 82 98 100 33 month expense $77,538.34 $47,504.40 $27,884.22 $19,740.00 $15,702.57 $12,060.00 $11,711.10 $10,831.59 $8,531.00 $8,246.00 $5,964.00 $4,213.82 $3,858.00 $2,588.75 $1,922.20 $1,445.00 $1,247.34 $836.00 $776.00 $720.00 $613.00 $305.37 $286.60 $0.00
2003
% of 33 33 month 33 month quantity month usage usage on hand expense maintenance capital 10-1-03 description 30' embedded aluminum pole 8.02% 132 94 152 16' black metal pole 4.91% 43 425 444 30' aluminum bolt down pole 2.88% 33 45 13 35' aluminum pole single bracket 2.04% 28 19 18 35' wood pole 1.62% 45 72 77 Fort Wayne standard post 1.25% 10 8 27 transformer base, small 1.21% 9 43 6 35' bronze painted aluminum pole 1.12% 21 0 29 30' big top pole 0.88% 20 0 11 Broadway post 0.85% 7 0 5 35' aluminium pole double bracket 0.62% 12 0 18 20' aluminum bolt down (Tower Heights) 0.44% 13 0 13 S Calhoun pole 0.40% 3 0 7 12' aluminum bolt down 0.27% 19 0 7 22' fiberglass embedded 0.20% 14 0 56 50' aluminum 2-piece 0.15% 1 0 2 8' arm 4'upsweep wood pole 0.13% 6 0 19 35' alum box fixture 0.09% 2 0 48 24' alum bolt down 0.08% 2 0 5 casing for FW standard 0.07% 8 0 0 T base large 0.06% 1 0 6 16' fiberglass silver 0.03% 3 0 27 40' wood pole 0.03% 1 0 6 35' alum big top 0.00% 0 0 3
Fixtures Used: Jan 2001-Sept 2003 Fixtures used: Jan 2001 Sept 2003
$ ranking 33 months 1 2 6 12 15 17 20 26 34 51 55 64 66 67 71 77 78 84 93 115 33 month expense $206,919.72 $85,283.37 $42,803.20 $16,213.00 $12,324.00 $12,056.65 $10,873.50 $7,573.53 $5,202.00 $1,938.00 $1,677.95 $1,135.40 $1,048.00 $1,021.93 $980.00 $710.22 $695.00 $574.00 $380.00 $108.89 $0.00 $0.00 $0.00 $0.00 description 100w HPS Town & Country fixture 150w cobrahead fixture 100w alley fixture 250w HPS T/C (discontinue) 250w cobrahead fixture 100w PMA fixture 400w HPS fixture with photo cell 400w HPS box fixture 400w HPS cutoff fixture 150w cutoff 250w T/C 100w HPS downtown fixture 250 W MH fixture S Calhoun 250w cutoff fixture 150w HPS wallmount fixture 250w HPS box fixture bollards for mall 150w HPS downtown fixture 150w HPS ornamental fixture special fixture type 5 t/c 250w Hadco W Central 250w wall mount 175w MH Allen Co fixture welcome marker fixtures % of 33 33 month 33 month quantity month usage usage on hand expense maintenance capital 10-1-03 21.41% 988 425 240 8.82% 633 240 119 4.43% 593 15 108 1.68% 25 0 2 1.28% 59 20 96 1.25% 67 0 3 1.12% 36 30 84 0.78% 37 0 23 0.54% 15 19 11 0.20% 19 0 17 0.17% 5 0 24 0.12% 2 0 5 0.11% 2 0 4 0.11% 7 0 27 0.10% 7 0 11 0.07% 3 0 18 0.07% 1 0 3 0.06% 1 0 10 0.04% 1 0 12 0.01% 1 0 0 0.00% 0 0 0 0.00% 0 0 9 0.00% 0 0 1 0.00% 0 0 7
Bulbs Jan 2001 Sept 2003 Bulbs used: Used: Jan 2001-Sept
$ ranking 33 months 4 8 27 37 63 69 73 81 91 102 122 126 143 33 month expense $49,688.52 $31,433.04 $6,687.12 $4,925.94 $1,185.45 $1,000.58 $864.82 $614.79 $411.60 $268.78 $88.40 $75.00 $32.05 $0.00 $0.00 $0.00 description 100w HPS bulb 150w HPS bulb 250w HPS bulb 400w HPS lamp 250w MH 175w MH 750w HPS lamp 1000w HPS lamp 400w MH 189w Edison base 69w Edison bulb special bulb 310 150w MH lamp 1000w MH lamp 70w MH lamp 100w MH lamp
2003
% of 33 33 month 33 month quantity month usage usage on hand expense maintenance capital 10-1-03 5.14% 5012 333 2173 3.25% 3516 0 2028 0.69% 748 0 1378 0.51% 551 0 645 0.12% 103 0 137 0.10% 94 0 8 0.09% 22 0 22 0.06% 23 0 27 0.04% 42 0 36 0.03% 129 0 80 0.01% 121 0 67 0.01% 1 0 18 0.00% 4 0 31 0.00% 0 0 11 0.00% 0 0 13 0.00% 0 0 24
In early October 2003, 48 250w bulbs and 48 400w bulbs were ordered! Why? Because we need them!
ja n
ja n
no v
no v
ja n
ju l
ju l
m ar
m ar
m ay
m ay
m ar
m ay
ju l
se
se
se
R-Sq = 1.2 %
R-Sq(adj) = 0.0 %
60000
50000
40000
30000
20000
Regression 95% CI
* With monthly measurements, there does not appear to be a significant linear correlation between material usage and the amount of funds spent for inventory acquisition.
Sylvania bulbs are the most cost effective for the City
G. E. PHILIPS SYLVANIA
Without the cost/lifespan analysis, former procedures would have directed us to purchase Phillips bulbs
ORIGINAL COST
1 YR
2 YR
3 YR
4 YR
Test Time
The addition of bulb replacement labor costs to the analysis, would further expand the cost differences
First time the procedure was used, an order of photo cells was reduced from 500 (4-5 month supply) originally requested to 200 ordered
Purchase/Replenish Pull System Implemented a widely recognized inventory system, developed by Toyota Motor Corp, known as Kanban Kanban is an empirically driven method of both signaling the need for inventory and controlling inventory levels
Historical Demand
Historical Demand
Estimate Future Costs By Analyzing Past Material Usage 4 Uses of Materials Maintenance Repair to Damaged Facilities Re-lamping Activities Based on Light-Out Lists Proactive Replacement of Aged Facilities and/or Bulbs Capital Construction Project Capital projects are known prior to construction. By meeting minimum requirements, capital materials can be ordered on a project by project basis. On appropriate projects, capital needs will now be segregated from other material needs. Recall that some of the historical data might be suspect
Demand analysis
Demand Analysis
Demand Analysis = Compare means, standard deviations, and medians for each item Pre data base implementation Post data base implementation
If similar, conclude historical usage was accurately collected use data collected since January 2001 for a specific item
If different, conclude historical usage was not accurately collected use data collected since October 2003 for a specific item
> oct 1
80 +1SL=72.5
Quantity used
60
+1SL=49.4
40
_ X=44.4
X=29.9 -1SL=16.3
20
Should all data be used to estimate monthly demand? Difference in means Difference in medians Similarity in Standard Deviations
factor
Levene's Test
factor
> oct 1
20
40 14-120nc
60
80
100
Quantity used
35
> oct 1
10
20
30 14-105nc
40
50
60
30
Quantity used
X=18.42 20
+1SL=29.83
_ X=15.2
10
-1SL=0.57
(Continued)
Test for Equal Variances for 14-151
est StDevs = 9.78 < oct 1 '03 Test Statistic P-Value Test Statistic P-Value 0.44 0.166 0.01 0.934
Similar Medians
Similar Standard Deviations
factor
10
50
> oct 1
Conclusion Including data back to Jan 01 should not result in under estimated demand
factor
10
20 14-151
30
40
This methodology was used to analyze demand for all class A and class B items
lead time
Lead Time
Lead Time - Time Expired From Order Initiation to Receipt of Goods stated in bid specifications for poles, fixtures, bulbs include City staff time for requisition preparation and sign-off
10
20
30
40
95% C onfidence Interv al for M ean 95% C onfidence Interv al for M edian
7.000 6.256
Main Effects Plot: lead time (in days) for Graybar, by item number
item
Conclusion: Lead Time Analysis must be done at the item level not the vendor level
14-120 14-500 14-502 14-505 14-520 14-557 14-700 14-701 17-112 17-113 17-114 17-116 17-118 17-120 17-122 17-123 17-300 17-301 17-306 17-309 17-331 17-332 17-333 17-340 17-399 17-503 17-505 17-506 18-103 18-112 18-113 18-114 18-201 18-202 18-203 18-205 18-210 18-706 18-707 19-603 20-221 20-222 20-242 20-244 20-246
Order Interval
Order Interval- Frequency of Placing Orders for Each part
Trade-off between the level of inventory quantities carried per item and the frequency of ordering the item.
If ordering often, can order less quantities per order. But there are overhead and administrative costs for initiating order, processing requisition, purchase order contacting the vendor and placing the order receiving the goods, re-stocking the shelves processing the payable
Pareto analysis used to establish order frequencies. Class A items are few but are 80% of the dollars in inventory. Class C items are numerous, but only a small part of total inventory value.
Order Interval
Preferred Products: Poles, Mast Arms, Transformer Bases
Poles/Mast Arms: charged a 13 14 % premium for orders totaling less than $11,000 / order, effective 2004. Various types of poles/mast arms can be mixed per minimum $11,000 purchase.
Preferred Products purchases, October 2003 - February 2004 averaged $7,429 per month. To avoid paying an average premium of $1,003 per month (if the interval is 1), the order interval should be at least 2 months. This results in an inventory that is larger than would be necessary otherwise, for items that are relatively expensive. But in effect, the excess inventory carried is returning approximately 13.5% in avoided expense.
Recall the Cause & Effect Matrix the process output cost effective purchases was ranked at 8 out of 10 in importance to the customer.
Order Interval
GE Supply Fixtures & Power Doors
Order Requirements: Lots of 25
Orders less than the per fixture price increases by 10%, or on average, $9 more per item. Again, the result is inventory that is larger than would be necessary otherwise if cost effective purchasing is to be achieved.
Safety Stock
Safety Stock
Safety Stock: inventory stock required to guard against process variability demand variability lead time variability quality variability Safety Stock Quantity: dependent on desired service level service level 1, on average no stock outs 84% of the time service level 2, on average no stock outs 98% of the time service level 1, 1 standard deviation of safety stock carried service level 2, 2 standard deviations of safety stock carried High Service Levels Need More Inventory/Safety Stock
Materials for capital projects are known in advance and ordered on a project by project basis. Capital projects are not impacted by the service level choice. For the cause & effect matrix, process outcomes were ranked by the Division Director minimizing total inventory carried ranked at 10 (high) responsiveness to calls, light outs ranked at 6 (medium) Street lights are not a critical service, so a service level of 1 will be used to establish inventory re-ordering points and optimal inventory levels.
Order more stock when (balance on hand + items on order) is less than the trigger point
Order Quantity = Kmax (balance on hand + items on order)
The database was modified to better capture lead time changes. As orders are filled and the database updated, the received date is recorded and compared to other order dates. The difference in dates is converted to monthly units. The database prints lead time reports that list the average lead time value by item and by vendor to update lead time fields.
Summary
%R&R P/T Sample Size Sample Frequency
project bid specs require material acquisition by successful contractor for 100% of bid street light projects
examine project bid specifications for inclusion of materials as pay items in project bids
1st project bid each construction season until procedures are embedded
posted transactions
100% of transactions posted daily for accurate kmax, kmin value re-calculations monthly. Demand calculations done for all 'a items' and 'b items' every month. Usage updated daily. Finance Manager to review lead time summary report and compare new values with values listed on product summary report. Update dtb with any changes. Perform task on a semi-annual basis.
demand means and standard deviations automatically calculated and kmax, kmin values automatically adjusted based on new metrics. Dtb auto runs on 1st of month
lead time reanalysis and determination, re-calculate necessary for lead-times and valid kman, kmin update dtb calculations
optimal order interval determine established for order intervals, each inventory item by item item
comparison of the cost of order processing to the cost of carrying inventory not yet established
stock out frequency rept reviewed by Division Director who makes determination if the costs of stock-outs exceed the costs of carrying more inventory
annually
material acquisition
At least weekly, run 'Materials Needed?' rept and 'Product Materials Summary' rept to spot any Needed?' report, items below kmin values. as of dec 'Product Process material requisition '04, not yet Summary' report sheet initiated
compare stock out occurances to total number of items ordered on a monthly basis, with stock out event classified as defective occurance. Chart quarterly performance
quarterly
material acquisition
submit material req list to supervisor for review. Upon return, check dtb for each item, noting price, vendor, and any special ordering considerations. Confirm prices, and order goods. Input material order information into the dtb requisition sheet by creating a purchase order
compare material req sheet to dtb and ascertain completeness of form. Determine if request seems reasonable.
receive materials
receiving goods
order arrival
oversee deliverly and unloading of materials. Verify reciept of all goods with packing slip. Update dtb.
differences between actual count and recorded count considered defective only if difference exceeds 5%
inventory record accuracy monitor inventory process output (monitoring the project Y)
comparison of dollars spent on each item as compared to total dollars spent for all items
run usage report, calculate item classifications, compare new classifications to old classifications and update dtb accordingly (pareto analysis)
Pareto items by spending level. Sort and order items according to dollars spent, highest to lowest. Add highest items until reaaching 80% of total dollars spent and designate these items as 'a items'. The next set of items totalling 15% of total dollar Product summary report run on last work day of month, and total inventory value reported to PW Finance Manager. Finance Manager adds monthly data to minitab file and produces I-chart. I chart pasted to file on shared drive.
total spent for all items in given time period. Minimum period is 1 yr annually
updated I chart of monitor dollar value of monthly vale of month end monthly usage inventory inventory report
monthly
At year end, a usage report is run to determine the total value of inventory used in the past year. The average monthly total value of realistic target not yet known inventory value is computed inventory used in because many items still from data used to build I-chart. past year, overstocked (dec 2004). Goal The total value of inventory average monthly is to continue to increase turn 2003 = .69 used in the past year is then inventory turn rate value of inventory rate going forward 2004 = 1.12 divided by th
100% annual usage spending/ave month end value of inventory carried over 1 yr annually
700000
1 1 1
Inventory values, $
600000
500000
1 1 _ +1SL=410481 X=399026 -1SL=387570 1
400000
600000
1
500000 400000 300000 200000 jul nov mar jul nov mar jul Observation nov mar jul
1 11 1 1
11
1 1 1
_ +1SL=251156 X=244336 -1SL=237516
nov
Since project inception, $400,000 of funds have been made available for use elsewhere. Without this project, inventory values would likely be at the level they were in early 2003.
Annual Budget
$1,300,000
$1,200,000
$1,100,000
$1,000,000
$900,000
2000 2001 2002 2003 2004 2005 2006 2007
BID YEAR
BID YEAR