MRP, "Just-in-Time" Strategies Reduce Inventory by $1,932,428
Marcus Ritosa, Process Improvement Intern
Date posted: August 30, 2013; lightly edited on October 2, 2013
What if you could provide both a highly-reliable offering to your customers and a wider selection? What if you could do this with both low operating costs and low overhead? We might not be used to “both-and” opportunities, often having to settle for “either-or” tradeoffs. But the truth is that sometimes, we can have it all. This is what an improvement team here at the Colorado Department of Transportation (CDOT) sought over three years ago, and what they continue to see the benefits of today.
Just in Time
What was improved, briefly
The implementation of materials requirements planning (MRP), coupled with “just-in-time” (JIT) purchasing strategies, has allowed the CDOT Storeroom operation to become more efficient. This implementation has enabled CDOT Storeroom operations to decrease inventory on-hand by more than $1.9 million during a 3-year period.
Background
Starting in March of 2010, a team began implementation of the Materials Requirements Planning (MRP) module within CDOT’s enterprise resource planning (ERP) system, SAP. MRP is an operations improvement technique for minimizing inventory levels while ensuring needed materials are available.
Project Personnel
The project team included this personnel from CDOT and the Governor’s Office of Information Technology (OIT):
Bob Corman (Director, Center for Procurement and Contract Services)
Eric Stelter (Governor’s Office of Information Technology, OIT)
Rick Riddick (Governor’s Office of Information Technology, OIT)
Margo Wilson (Center for Procurement and Contract Services)
Val Ramsey (Center for Procurement and Contract Services)
Thad Fraedrich (Region 1 Storeroom Supervisor)
This team worked to balance inventory availability and management costs for over 3,200 different items at the Region 1 Storeroom in Aurora. The goal was to reduce costs and capital expenditures and to decrease ordering and inventory management time. After 16 months of planning, the MRP module went live at the Region 1 Aurora Storeroom in July of 2011. The live test was deemed successful that November, and by the following March, all CDOT Storerooms were live, after just two years and a total implementation cost less than $10,000. MRP has allowed controllers to better manage their inventory, as shown in the benefits summarized in the table below.
MRP Table
The gains realized between implementation and August 2012 have been sustained and amplified. Since implementation, Region 1 Storeroom Supervisor Thad Fraedrich reports that inventory management and processing costs are down by 5%. At the same time, the variety of items stocked has increased from 3,200 to 6,600. Material orders have stayed roughly the same. Much of this benefit is attributable to the Lean “just-in-time” (JIT) purchasing strategy that the MRP system promotes. JIT purchasing orders products in response to consumption such that replenishments are ready just when they are needed, not beforehand.
The experiences from all CDOT Regions tell a similar happy story. “Top stock (cartons on top of shelves) and case stock (unopened cartons) have declined considerably,” says Mario Ramos from the Region 3 Grand Junction storeroom, clear evidence of shrinking inventories. “More items have been added to the shelves, and these items have improved service to the traffic maintenance crews,” asserts Barbara Portillos from the Region 2 Pueblo storeroom. In managing a system with these bottom-line benefits, Tim Willoughby from the Region 4 Greeley storeroom notes that the process of determining what to order is much easier. Even creating a purchase order is simpler. Willoughby notes, “it has been a big help not to have to type or copy/paste things into each purchase order.”
There may be rainbows and butterflies, but not without a few rain showers and hairy caterpillars along the way. Willoughby says that it’s a matter of “garbage in, garbage out.” It has taken some significant time to get the system up and running, as well as to maintain it. There are bugs in every electronic system, but CDOT has been working through them along the way. The end benefits of this are noted by Gary Hagaman of the Region 5 Alamosa storeroom. “Maintenance crews no longer need to “stock up” for themselves because they know what they need will be there when they need it.”
Val Ramsey, MRP/Storeroom Controller, reports that the next effort is to implement SRM, a web-based SAP module that will create purchase orders (PO) directly through the MRP’s generated purchase requisitions. With the web-based interface of SRM, the process should be more user-friendly in addition to it being more efficient in support of helping CDOT’s services become more effective, efficient and elegant.
Bob Corman, CDOT’s Director for Procurement and Contract Services, stated that “We want to thank our implementation team for their dedication in implementing the MRP module and to all storeroom staff for embracing the change and making it a success!”