Eliminating Inventory on the Water
Category: Supply Chain • Apr 13, 2021
By Dave Burns, Senior Advisor to AMT – The Association For Manufacturing Technology
Recent stories of the cargo ships back-up in the Suez Canal and waiting to unload at California ports reminded me of an incident some years ago that showed the hidden costs of shipping, lead times and inventory.
When I was first starting to work with metal 3D printing, I ran across a company that was making filters for centrifuges. The owner, let’s call him Joe, was wondering if 3D printing might help him in his business.
Joe’s business provided service parts to the mining industry. Mining centrifuges do a good job of beating up the metal filters and those filters need to get replaced often. However, the filters need to be available on demand – the centrifuges could not be down for a long time, waiting for a new filter. Since there were multiple face widths and multiple depths of filters, Joe needed 16 SKUs always available on the shelf.
The manufacturing process was pretty simple. A rectangular metal piece was stamped in a way to form a pocket in the filter, and the pocket was punched out. Then, in a large workroom, many hands toiled to solder wires across the filter opening. Joe was paying a Chinese manufacturer about $50 a piece, including shipping.
When I looked at 3D printing the parts, a few things were immediately apparent. 3D printing could improve the design by printing curvatures into the corners, improving fluid flow. Incrementally, the main failure mode of the filters was in the welded joints, and 3D printing could significantly decrease that failure mode.
Joe hesitated. The unit cost to 3D print the filters would be $60. “Why,” he asked, “should I erode my margins just to use 3D printing?”
The answer came when he and I looked at total systems costs. Joe could not be caught short of any SKU, lest a centrifuge go down and he not be able to supply a filter. His lead time from China was nominally 12 weeks (including transport by sea), but often parts were late. So, he felt that he needed to keep two to four weeks supply of each SKU on the shelf – and then have at least 12 weeks supply of each SKU on the water at all times.
When Joe and I totaled the value of all the parts in inventory, and all the parts in process or in transit, we learned he had the equivalent of more than 30 percent of his annual revenue for the product line tied up in supply chain costs. By embracing a local source for 3D printing, he reduced his lead time to a consistent 10 days and delivered a better performing design. He no longer had to speculate about future demand because lead times were so short. Joe eliminated all of the difficulties that existed with sea freight, and he freed up over one million dollars of investment in work-in-process.
The lesson to be learned here is that as we think about the optimal location for sourcing manufacturing, the new advanced manufacturing technologies create a pretty compelling case for making things as close to the point of use as possible.