Automation Or Bust

Not many employees would breathe a sigh of relief to hear their company described as a "non-performing asset." However, this less-than-confidence-
inspiring evaluation from company headquarters meant the management team at Philips Display Components (PDC) had a chance to improve their present assessment.

After all, being labeled a non-performing asset was much better than having a "bleeder" tag applied to your company. Philips' companies that were saddled with bleeder status were divested. Philips Electronics North America handed down the company-wide ratings in early 1997.

PDC, a large division of Philips Electronics North America, wasted little time in trying to elevate itself from its current status. PDC corporate headquarters are in Ann Arbor, MI, but its manufacturing and warehousing facility is in Ottawa, OH. Setting its sights on improving operations meant PDC had to concentrate on the 1.3-million sq. ft. facility in Ottawa.

The facility is roughly 50 years old and located just off the main road that runs through Ottawa. While the facility has always manufactured and distributed picture tubes for television sets, even an untrained eye can detect some of the major transitions the facility has undergone over the years. The most obvious is a set of train tracks that run through the facility. These were used when PDC's products were shipped primarily by rail. When it switched to trucking as a distribution method, PDC enclosed the tracks to create a tunnel and erected a walkway above them. Their sole purpose now is to segment the plant into manufacturing and warehousing divisions.

Currently, the 1,800 employees at the facility manufacture and distribute picture tubes for 25-, 27-, and 32-inch television sets. Once assembled, the picture tubes are shipped to such television manufacturers as Sharp, Sanyo, Samsung, and Magnavox (a sister company of Philips). PDC produces about 20,000 picture tubes per day and had estimated gross sales of $600 million in 1998. However, its manual warehouse operations were becoming as antiquated as the railroad tracks that run through the facility.

How Accurate Is Your Inventory Count?
PDC's customers were also placing demands on the manufacturer. In an effort to cut its inventory costs, PDC only wanted to receive the necessary number of glass components that it required from suppliers. However, to work on this type of a consignment basis, vendors wanted PDC to implement a computerized warehouse management system (WMS). "The vendors needed assurances that our inventory numbers were accurate. With our existing system, we could not give them that assurance," states Bob Banyas, physical distribution manager at PDC. "At any given time, we could not be certain that our inventory count was accurate."

With about 35,000 pieces of finished goods stored at PDC's facility, physically calculating inventory was a lengthy process. Adding to the inventory numbers were two PDC warehouses located a short drive from the Ottawa facility. At one point, PDC had a maximum of 480,000 picture tubes stored at its warehouses. But, a count of 280,000 picture tubes is more common.

The seven receiving locations at PDC are kept busy throughout the day as employees unload 30 shipments daily from the company's suppliers. The pallets received are loaded with the parts that are needed to manufacture television picture tubes. In addition to a variety of electrical components, the shipments also include the glass that is used for the front and back of picture tubes.

Paper: The Bane Of Your Existence
With raw materials pouring in the front door and finished goods being shipped out the back door, PDC's manual inventory system was not reliable. Raw materials were unloaded from trucks and stored at the facility. After a truck was emptied, the amount of raw materials unloaded was entered manually into a terminal at the warehouse office.

When manufacturing required materials, the warehouse office generated a paper form for forklift operators. This move ticket identified the amount of material to be transferred from inventory to manufacturing. After the transfer was made, the driver returned the ticket to the warehouse office where the move was recorded. A couple of large file cabinets were used to store all the move tickets.

"Move tickets would get lost or misfiled, which made our inventory records inaccurate. The tickets would also get smudged or the writing was illegible," comments Diane Turner, inventory control supervisor. "Sometimes drivers would move the wrong item to manufacturing and turn in an incorrect move ticket."

With its existing system in serious need of automation, PDC assembled a team with representatives from warehouse operations, the information technology (IT) department, and purchasing. A request for proposal (RFP) was drawn up and the team met with several vendors before choosing ASC, Inc. and its warehouse management system (WMS) product, ASCTrac v4.0. "In addition to having the best product that we researched, ASC is located in Dayton, OH, a short distance from Ottawa. The location of ASC was really a bonus. Because of the company's proximity to us, we felt it could provide better service and support," adds Banyas.

Radio Frequency Connects Employees To Information
After selecting ASCTrac in December of 1997, PDC began a phased implementation of the software at its facility. The company installed the Receiving and Inventory Management Modules of the software as well as an extensive Symbol Spectrum One RF (radio frequency) network.

The facility was separated into four quadrants with a separate RF network in each. All four RF networks are tied into the main ASC database. "Cabling the RF networks was made more difficult because we run three shifts at the facility. We had to install the network at night, during our non-peak hours," explains Banyas.

Once completed, phase one allowed PDC to bar-code label, scan, and track items and skids as they came off production lines. The company also had the ability to label, scan, and track raw materials received at the receiving docks. PDC uses nine SATO CL 408 bar-code printers and Symbol handheld scanners to accomplish these tasks. Phase two included the implementation of the ASCTrac Picking Modules

Now, for example, the warehouse office may receive a request for 100 electrical components to be moved out of inventory and into manufacturing. The order is sent out to a forklift driver over the RF network. The LCD on the handheld unit indicates to the driver the amount of inventory and in what row it is located. The driver locates the inventory and scans the bar-code label on the components to confirm the type and amount.

Once confirmed, the handheld unit indicates where the inventory should be transported. As the inventory arrives at its destination, that information is entered into the handheld and the inventory is deducted. "The system accurately calculates inventory in real time. It also identifies the driver who was transporting the inventory and gives us a transaction history for the inventory," states Tom Altenback, warehouse operations manager at PDC.

Keep Track Of What You're Shipping
Orders for finished goods are still handled as they were prior to the implementation of the WMS at PDC. Vendors place their orders at PDC headquarters in Ann Arbor. The orders are entered manually and made available to PDC through a wide area network (WAN).

As the picture tubes flow off the assembly line at PDC, they are packaged and placed on pallets. Employees then apply a bar-code label to identify the skid, its contents, and quantity. Again, handheld units are used by forklift operators to scan the label and log the inventory as it is put away. Once in storage, forklift drivers transfer the finished goods from the PDC facility to one of its two warehouses. Or, the picture tubes can be sent directly to a customer from the PDC plant. In either case, handheld units are used to scan bar codes, which identify the goods and keep track of inventory.

Investment In Automation Pays Off
PDC is betting that its investment in a WMS will pay off in the extremely competitive field of manufacturing electrical components. Through better inventory management, the company will be able to work with vendors on a consignment basis. Additionally, finished goods sent from PDC to vendors will be more accurate in quantity and type. "Customers don't want to receive something they can't use. The number of inaccurate shipments is used as a measuring stick by customers when determining which supplier they will use. If our shipments are more accurate, it gives us an edge," comments Banyas.

PDC's investment in accuracy and efficiency was about $400,000 for the entire WMS installation at three sites. That total includes hardware, software, RF antennas, cabling, training, and supplies. The cost of the software accounted for close to one-third of the total implementation cost. While PDC could have purchased a maintenance agreement, the company opted to handle that process internally. The WMS installation was also done internally and involved 20 IT staff members in various capacities.

Get Efficient Or Get Out
Since the implementation of the WMS, PDC has consolidated its warehouse offices. The company used to have an office for shipping, receiving, and inventory. Now, there is only one main office that handles all warehouse operations. The streamlining of the offices coincides with the streamlining of operations at PDC. "Television prices are the lowest they have been in history. We are competing against foreign countries that have cheaper labor costs than we do," explains Banyas. "We have no choice but to be more efficient."