Materials Management, Rogers, AR

Overview

Name: Curt TempelDate: May 2012

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“Flavor” Conversion to Standard Grade Powder

• Statement of Purpose:– The purpose of the “Flavor” conversion to Standard grade powders project

is to increase business at the Rogers facility by increasing customer satisfaction through both product quality and availability.

• Increased business for our existing customers• Increased business for new opportunities.

• Existing strategy:– Over time, 86 different powder grades have been expanded to meet

individual customer specifications.

– 219 Flavors have been created to meet the specific customer specifications.

– A partial list of Major Customers using Flavors include:• Smith Bits Smith Italy MegaDiamond GeoDiamond• Halliburton Halliburton Northbelt Harbison Fischer• Atlas Copco Brunner & Lay Diamond Innovations

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Flavors by Customer

Existing Situation: All Flavors by GroupRow Labels Sum of Annual Total Count of Mat/Flavor % of Flavors % of Annual VolumeEnergy 492,655 95 43.38% 48.45%Flow 24,751 19 8.68% 2.43%Hard Rock 208,449 32 14.61% 20.50%Round Tool 45,753 9 4.11% 4.50%Wear 245,241 64 29.22% 24.12%Grand Total 1,016,848 219 100.00% 100.00%

Disadvantages of Flavors

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• Disadvantages of using the Flavor System

• Historical Tracking• “Flavors” are not tracked through SAP

• Demand history for Flavors is not maintained and is very difficult to monitor.

• Lack of tracking makes it difficult to determine how much inventory (of the flavor) to keep in stock in order to fill customer demand.

• Inventory Identification• Existing lots of powder are not easily identified in SAP, increasing:

• Production of unnecessary stock to fill customer orders.• Time spent to locate specific Flavors for use in Production• Additional time spent determining which powders need to be

produced.

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Disadvantages of Flavors

• An example taken from a recent manually created spreadsheet report illustrates some of the confusion created by “Flavors”: Please notice this illustrates a single grade with multiple Flavors or Customer Specifications that are produced for a single grade.

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Advantages of Conversion from Flavors to Grades

The advantage to converting from Flavors to Grade Powder is to assure the availability of specific powders in order to meet our customers needs.

• The historical demand required to analyze and project powder requirements by customer specification will be readily available.

• As accurate demand is collected for the newly established grades, forecasts and inventories can be fine tuned in order to optimize both inventory and availability.

• Safety stocks will be established for each added grade to cover most fluctuations in demand.

• Reorder point logic will be implemented to automate the powder ordering process.

• Powder shortages, or outages, will be restricted to abnormally large spikes in demand, increasing on time deliveries and customer satisfaction.

Flavor Conversion: The cost.

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Increasing the number of Powder Grades requires increasing individual Safety Stocks for the added grades, adding inventory costs. In addition, reorder point logic will be added to automate the powder replenishment process. The combination of safety stocks and reorder point logic will automate the ordering process by supplying “ordering triggers”, assuring product availability and allowing the powder planner to focus on powder forecasts.

In order to assess the financial impact of this conversion, inventory requirements, including safety stocks and reorder points were calculated for 137 new grades. These grades represent coverage for 80% of the total “Flavor” demand. The cost of coverage was then calculated based on July 1st standard costs. The projected costs were then compared to similarly projected costs for the standard grades that currently exist.

The matrix that follows was developed from this analysis:

Costs of Adding Flavors

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Flavor Conversion to Grades Analysis

Statistics86 Grades Considered219 Flavors

To Cover the top 80% of the Monthly demand Priced using

21 Grades are considered (roughly 25% of total grades considered) Grades created or Converted July, 1st Costs CommentsSingle flavor to be converted into a Grade 36 ($463,043)Reduce Overstocked Inventory

Multiple flavors within a single grade to be converted 59 $1,917,471 Includes reduction of overstocked inventory

Slow moving flavors within a single grade to be converted 42 $1,279,341 No inventory reduction considered

Total Grades/additional Inventory $ 137 $2,733,769

Reduction from E & O Tolling ($228,928)

Current 387 Powder Overage being held for larg CSP Order ($420,612)

Current 352W Powder Overage being held for large CSP Order ($246,109)

Single Flavor, Multiple Flavor, and Slow moving conversion, less reductions $1,838,120

Calculated Safety Stock at 95% Service LevelJuly 1st standard costing used

Coverage Created

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The proposed flavor conversion will create powders for valued customers for the Rogers plant. This availability will increase our ability to react to their needs and meet their expectations, leaving Kennametal Rogers a viable candidate for additional sales volume.