Innovation Toolkit: Survive and Thrive: 2009 and Beyond

Dec. 1, 2008
This special Innovation Toolkit is an easy-to-read guide that can help prepare you for progress.

As Roth notes in the preceding article, those who challenge the status quo and embrace innovation are better equipped to survive turbulent times. And, innovation must be a continuous process, not a knee-jerk reaction to an emergency.

As organizations in all industry verticals tighten their belts, executives in charge of the flow of materials have more on their plates than ever. It can be challenging to find the time (and energy) to keep operations running smoothly, let alone research, progresbrainstorm and explore creative solutions for efficiency and cost reduction.

That’s where MHM comes in. We did the dirty work for you.

To help guide you along the perilous path ahead, MHM scoured its extensive article archives and tOutsourced Logisticshose of our sister publication, . We looked for articles that focus specifically on cost control, bottleneck reduction and efficiency improvements, and we condensed those stories to provide a quick glimpse into complicated solutions. These fastread excerpts outline proven methods for reducing costs while retaining the quality and quick response needed today. To allow you to dig deeper into the details, we’ve provided links to the full articles at the end of each excerpt.

MHM has always been a one-stop shop for the resources you need to keep costs down, efficiencies up and product moving. This Innovation Toolkit is another weapon for your business arsenal.

Just as you must ensure the right material reaches the right destination at exactly the right time, MHM is committed to delivering the right information at the exact moment it’s needed. The process is fluid; we expect your needs to change as business changes. We are committed to sensing and responding to your needs just as you respond to the demands of your customers.

Challenges can be overcome with creativity, open mindedness and a willingness to embrace change. Here, on the following pages, you will find strategic tools that, when combined with smart execution, will ultimately advance your competitive position.

Green Is Good Business
From the pages of Outsourced Logistics

In October, Tony Hollis, director of innovation and technology management at Exel, offered energy-saving tips at the Council of Supply Chain Professionals’ annual conference in Denver.

One example is a lighting initiative at a California distribution center. Replacing existing lighting with new fluorescent technology and motion sensors required an initial investment of $185,000, Hollis pointed out. The local utility was offering an incentive, which amounted to $79,000, yielding a net investment of $106,000. For the first year, the estimated savings were pegged at $118,349. When final calculations were done, the actual first-year benefit was $181,777, amply paying back the actual cost and nearly reaching the level of the unadjusted investment.

Innovative technology plays into Hollis’ list of tips, including automation inside the distribution center. He noted that accreditation under the Leadership in Energy and Environmental Design (LEED) program targets five areas for facilities. Energy and atmosphere receive 27% of the consideration, indoor environment quality is 23%, sustainable sites is 22%, materials and resources is 20% and water efficiency is 8%.

Many options can provide near- and long-term savings and benefits. Solar and alternative energy sources for a portion of the operation, for example, reduce emissions and save energy costs. Packaging reductions and recycling lower consumption of materials and resources.

For the full story, visit

Maximum Production, Minimum Space
By Del Williams
From the pages of Material Handling Management

Greenheck, located in Schofield, Wis., is a manufacturer of ventilation equipment. The company’s main production facility, which supplies parts nationally, was being strained.

“We not only had to ramp up production but also get leaner since we had limited production floor space,” says Larry Toboyek, manager of tooling and maintenance at the main production facility.

To streamline production and meet quality, cost and delivery goals, Greenheck purchased larger, progressive die stamping presses and built larger dies in its in-house die center.

The problem, however, was how to store the massive dies. Some dies measure up to eight feet square and weigh nearly 10,000 pounds. Storage was impossible on standard storage racks, which typically support loads of only 5,000 to 6,000 lbs.

Heavy-duty racks add flexibility to Greenheck’s manufacturing operations.

The company found an answer in Milwaukeebased Wisconsin Lift Truck Corp., a material handling and automated systems distributor, and Stevens Point, Wis.-based Steel King, an industrial storage rack manufacturer.

The Steel King die racks allowed Greenheck to store its largest dies, where needed, on the production floor. Completely welded bed frames with beams and supports from front to rear, welded into one assembly, add to structural integrity, while heavy-duty 3/4-inch anchors and shims secure and level the racks.

“Standardizing rack size at the required capacity not only enabled us to add more shelving, we also stack dies as high as our building height allows,” explains Toboyek. “That gave us the means to store our dies cost effectively, despite limited production floor space.”

“We’ve added about 10% to 15% to our bottom line with the larger dies, without adding any square footage to our stamping facility,” says Toboyek. The efficient, high-capacity die racks help make this possible and should generate ROI within three years.”

For the full story, visit

Raising the Roof on Sustainability Costs
From the pages of Material Handling Management

An increasingly popular way to get a larger building is to pop the top. Brian Holroyd, vice president of Rooflifters, Toronto, Ontario, says financial forces are going through the roof.

“Reusing a building is nothing new,” says Holroyd. “What we do actually increases the value of the asset— the building—which is what people are looking to do these days.”

Holroyd says there’s money to be saved in reusing or selecting a building with a favorable geographic location yet a limiting height. “Rehabilitating a building by raising the roof height, expanding vertically rather than horizontally,” he says, “can cost, typically, as little as $15 per square foot for a 100,000-square foot building.”

As an example, he cites Canada’s largest distributor of candy and snack foods, Planter’s Peanuts in Toronto. The company decided to expand upward rather than outward. It raised the existing roof of its 70,000- square foot warehouse by jacking up the entire roof to achieve the 16 additional feet it needed to accommodate its modern multi-story material handling system. Holroyd estimates the company saved approximately 40% in construction costs, while more than doubling the facility’s useable area from 1,120,000 cubic feet to 2,240,000 cubic feet in just six months.

“We have a patented process,” he explains, “that transfers the existing roof load onto specially designed hydraulic equipment placed underneath the structural beams of the roof.”

The entire roof is then raised to the desired height and held there while the wall structure is strengthened and built up to the new height. New structural columns are built, and mechanical, lighting, and HVAC systems are reconnected.

During the actual raising, the Rooflifters’ system is able to synchronize the lifting of each point with tolerances as low as 1/8 of an inch, so that there are no stresses or damage to the existing roof structure, thus maintaining structural integrity. All work is done under the roof, inside the building. Rooflifters is able to raise roof areas of up to 150,000 square feet at one time, and larger areas can be done in phases. The building can even be used during the process, although the working section has to be vacated.

Holroyd says there are government incentives in many areas for this kind of building use and reuse. “Investors, owners and businesses that are outgrowing their present facility should also be aware of local, state and federal programs that offer incentives to rehabilitate existing industrial structures and reuse industrial buildings vacant for at least two years,” he says.

For the full story, visit

10 Steps to Reducing Inventory
By Jane Lee
From the pages of Material Handling Management

Excess inventory takes up valuable space, is expensive to maintain and may become obsolete or spoiled. However, insufficient inventory leads to lost sales and unhappy customers. Most companies have two challenges: too much of the wrong stuff and not enough of the right goods. Knowing where to begin making inventory improvements is not easy. Here are 10 steps you can take to get started.

Step 1: Make sure inventory records are right.
Step 2: Find the inventory in black holes.
Step 3: Identify and dispose of worthless inventory.
Step 4: Identify and make plans for nearly worthless inventory.
Step 5: Consider reasonable rebalancing of geographic regions that can then be analyzed separately.
Step 6: Within a rebalanced region, determine fastest-moving SKUs in dollars and days of supply.
Step 7: Evaluate days’ supply by individual warehouse within the rebalancing region.
Step 8: The easiest way to reduce excess inventory is to stop making more of it.
Step 9: Evaluate alternate ways of selling inventory, especially if you’ve rebalanced the inventory within your warehouses and still find excesses that cannot be brought down to reasonable levels within an acceptable time period.
Step 10: If, after analyzing all the possibilities above, you still have certain inventories in excess, you may have to consider just writing them off. No one wants to scrap good inventory, so the most important lesson is not to get into that position in the first place.

For the full story, visit

Spare-Parts Service Management: Today’s Challenges and Opportunities
From the pages of Outsourced Logistics

While many companies once considered spare-parts service management a necessary evil, most now realize that it can and should be a profit center, as well as a way to differentiate themselves from their competitors.

“Being able to fulfill the demand for spare parts at the time they are needed is a key element of customer satisfaction and retention,” explains David Barboro, general manager, service network solutions, for Click Commerce.

More than ever, manufacturers these days are seeking ways to increase growth and profits. However, many of them neglect one important opportunity—their own service business. With the challenges of low-cost competitors and increasing business complexity and customer demands, one way manufacturers can differentiate themselves is via service excellence, especially in the area of replacement and spare-parts management.

Research suggests that service-related parts operations can achieve 40% to 50% operating margins. In fact, the service of product, if managed efficiently, can often be more profitable than the initial sale of the product itself.

And, there’s something else to consider: In times of economic downturns and slowdowns, service and parts sales are often far more active and important than original manufacturing and sales.

A report published by Deloitte Research in 2006, titled “Service Parts Management: Bringing Industry Leadership to Your Service Parts Business,” benchmarked the service businesses of some of the world’s largest manufacturing companies, representing a combined revenue of $1.5 trillion. For these companies, service revenues represented an average of 25% of their total business. For some companies, it was as high as 50%.

The report noted that the average profitability of the service businesses was more than 75% higher than overall business-unit profitability, accounting for about 46% of total profits. In fact, for many companies, there would be little or no profitability without the service business.

To excel in spare-parts service management, companies need to create processes that guarantee a number of things, especially accurate information on inventory that is available to ship, easy ordering, multiple shipping options, real-time order tracking, real-time shipment tracking, timely and accurate invoicing, easy returns and effective post-sale follow up.

“In addition, it is very important to maintain and even increase the service levels to your customers, which continue to evolve due to changing business needs and other contractual arrangements that companies have with their end customers,” states Barboro.

For the full story, visit

Turn Dead Inventory into Dollars
By Emily Collins
Communications associate, National Association for the Exchange of Industrial Resources
From the pages of Material Handling Management

Ever wonder what to do with obsolete or slow-moving SKUs? The smartest solution may be to give them to charity.

By donating overstock merchandise, your business can qualify for a federal income tax deduction, under 170(e)(3) of the U.S. Internal Revenue Code. Although this deduction has been available for 32 years, there are few corporations taking advantage of it. C corporations may deduct the cost of the inventory donated, plus half the difference between cost and fair-market value. Deductions may be up to twice cost.

For example, your business (a C corporation) sells a product, for which it pays $1. Retail price is $2. Your deduction is $1.50. If you pay $1, and that item sells for $4, yourdeduction is $2 (limit of twice cost). S corporations, partnerships and sole proprietorships earn a straight cost deduction.

Even if a business gets only a straight cost deduction, it may still be beneficial to donate stagnant merchandise rather than clear it through a liquidator. Since a liquidator looks for the lowest price, its offer may be less than cost— substantially less.

Besides the tax deduction, there are many other great benefits of donating excess inventory:

• Free up needed warehouse space.
• Put your marketing focus where it should be—on your top sellers.
• Avoid problems involved with liquidating overstocks.
• Donating can often clear all of your problem products at once.

However, before a company can earn a tax deduction and benefit from the advantages of donating excess inventory, it must first take several steps. Companies must donate to a public or private school, and in the case of nonprofit organizations, ensure that the nonprofit is a 501 (c)(3), since only that IRS classification qualifies.

An accountant or tax adviser should instruct the recipients as to what information they need to include in the documentation they furnish to the company as proof of the donation. Then, the company has to include the recipient’s letter on corporate tax forms as support for claiming the deduction.

For the full story, visit

Leaning Toward Green
By Phil Friedman
vice president of consumer industries, QAD Inc.
From the pages of Outsourced Logistics

In these challenging economic times, lean principles are the glue that holds the new paradigm together. Lean manufacturing drives more effective and efficient resource utilization, reduces waste and energy consumption, optimizes direct and indirect resources and helps ensure a better product at less cost.

The lean philosophy, eliminating waste, essentially comes down to taking many small actions to create big results. More and more manufacturers are extending lean practices beyond the shop floor to enable green initiatives and meet sustainability mandates.

What Wal-Mart and other retailers have recognized and driven into the manufacturing sector is that aligning green with lean across the entire supply chain drives both top-line growth and margin improvements, while gaining respect from customers and consumers.

Interestingly, according to a recent Grocery Manufacturers Association report, many consumer manufacturing companies are adopting sustainability initiatives in response to internal drivers, such as cost reduction, commodity risk management and upholding corporate culture.

Manufacturing companies can proactively enable sustainability across all key business processes in their organization by implementing the principles of lean. The underlying principles build efficiency within the enterprise and across the entire supply chain, helping companies maintain success through continued process improvement.

A lean solution for manufacturing ensures that plants, lines and machines run at peak efficiency—a key component of enabling sustainability. It also ensures necessary spare parts for maintenance are aligned with production requirements, ensuring minimum downtime and optimizing runs.

In the extended supply chain, lean solutions help align demand to capacity to optimize production lines and maximize energy and raw product utilization. For example, consumer companies can apply lean principles to align packaging material to specific production events, resulting in more efficient use of materials, reduced waste and improved line and machine utilization.

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Companies that do not begin to implement sustainability initiatives on their own will soon find it being required of them by shareholders, customers, federal and state agencies and, most importantly, the consumers of their products.

While sustainability continues to evolve, companies looking to enhance their business advantages can get started by implementing and expanding lean manufacturing solutions across the entire supply chain to address the many aspects of meeting their sustainability—and revenue—targets. When lean goes green, everybody wins.

For the full story, visit

The 12 Most Costly Conveyor Maintenance Mistakes

By Thomas E. Betts
installation and service manager, TriFactor
From the pages of Material Handling Management

Many companies don’t give much thought to conveyor systems—until there’s a breakdown. Then, a conveyor becomes a major issue. Production stops. Employees are idle. Shipments are late. Customers are upset. Often ignored, a conveyor system is a critical link in a company’s distribution system. Here are 12 of the most common material handling system maintenance mistakes.

1. Lack of regular inspections.
2. Missing maintenance records.
3. Failing to take the temperature of motors and reducers.
4. Not adhering to OSHA standards.
5. Lack of adequate maintenance coverage.
6. Inadequate parts inventory.
7. Not learning from repeated breakdowns.
8. “If it isn’t broken, just let it go, and don’t worry about it.”
9. Failing to care for the controls.
10. Using a conveyor in ways it wasn’t intended.
11. Avoiding those difficult places.
12. Failing to train employees in the operation of conveyors.

For the full story, visit

Knowledge is Power
By Mary Aichlmayr
From the pages of Material Handling Management

On average, only 20% of the total cost of a lift truck can be attributed to the purchase price, while 80% is operating cost, said John Russian, manager of fleet marketing at Hyster Co., at the company’s

FleetSmart seminar in Chicago. Hyster created the event as a way to educate material handling equipment users about proper fleet management practices. Fleet management is all about controlling that vital 80%. And, it’s becoming even more important as more companies continue to try to reign in variable operating costs.

Managing a fleet of material handling equipment is a complex undertaking. A manufacturer or distributor may operate hundreds of lift trucks throughout a national network. That’s why many companies look to lift truck manufacturers and equipment dealers for ways to control their fleet costs.

Aztec Galvanizing Services (Fort Worth, Texas) provides hot-dip galvanizing services for corrosion protection on a range of steel products, from ornamental fencing to trailers.

Cole Morgan, corporate manufacturing engineer at Aztec Galvanizing, is in charge of ordering lift trucks for each of the company’s 14 plants nationwide. Every plant operates a fleet of four to six lift trucks.

Before January 2008, when a plant manager needed to replace a lift truck, a request was sent to Morgan, but there was no hard data to back up Morgan’s buying decision. That process was sufficient at first, but Aztec Galvanizing’s fleet began to grow.

“Our fleet got so big that we needed some kind of management system to keep track,” says Morgan. He needed a way to see which lift trucks needed to be replaced, remotely, from his headquarters office in Fort Worth so that he could justify new purchases. He also wanted to control lift truck repair costs by ensuring that the proper preventive maintenance (PM) practices were conducted.

Morgan selected a Web-based fleet management system from BE-Fleet, a division of equipment distributor Briggs Equipment (Dallas). The centralized fleet management program was developed in 2002 to provide fleet management and material handling consulting services for manufacturers and distributors.

The ability to analyze breakdown and repair data and track PM procedures was most important for Aztec Galvanizing. Morgan initially tested the BE-Fleet system in two plants for about six months. In January 2008, he deployed it throughout the entire company. When Morgan logs into the system, he can instantly view maintenance and repair data for lift trucks in all 14 plants. “I can tell if different plants are having issues with the same parts,” he says. And, that visibility allows him to make corporate-wide decisions about the company’s fleet. “Now, I can see where our problem machines are and justify them being replaced,” says Morgan.

Using BE-Fleet has meant that the company can be proactive rather than reactive. “Before, we just fixed them when they broke,” he says. “When you have access to all of that information in one place, you start to see trends.”

For the full story, visit

Greener Company Culture–From the Top Down
By Wes Andrud and Joe Froelich
consultants, Proudfoot Consulting
From the pages of Material Handling Management

Escalating energy prices have served as a wake-up call to corporate leaders to devise ways to conserve energy. Energy efficiency is evolving from a corporate concept to a priority item on the CEO’s agenda.

Over the past five years, the average company’s energy costs have escalated from 10% to 30%. Some CEOs have already adapted to current conditions and implemented strategies to create energy-efficient facilities. Company leadership must now treat energy as an operational challenge that must be managed diligently, deserving the same attention as the purchase and use of raw materials. In some cases, a company’s survival will depend on how quickly its management team can adopt energy-conservation strategies.

While energy is a vital operating component, energy reduction does not need to be cumbersome. With volatile energy costs in the news, energy conservation should be seen as an opportunity, treated and managed as a companywide initiative that will provide long-term benefits.

Effectively managing energy consumption requires a commitment to educating workers. This involves energy awareness, empathy, best practices, coaching and action. Company leadership needs to modify employee behaviors to effect cultural change throughout the company. It must start with the CEO and executive management regularly articulating commitment to energy efficiency and its importance to profitability and the environment.

Company leadership must also lead by example. Upper-level management should be first to incorporate cost-cutting measures in their own offices, facilities or departments. This demonstrates to the rest of the company that these initiatives are not simply window dressings.

According to one CEO, “The real secret to reducing energy costs is not in the technical aspects of the process; it is in the management attitude. A desire to reduce costs through good energy management and an effective implementation and monitoring program will always produce the results and the commercial benefits.”

Some waste reduction is easy to achieve. For example, lighting, conveyors, compressor stations, chiller plants and electrical motors should only be running when they are needed for production. Certain nonessential systems can be placed on timers.

Less obvious sources of energy waste require technical expertise of a third-party firm to identify, evaluate and determine solutions. These issues may include inefficient processes, ill-defined practices around energy use and the lack of clear ownership of energy management. More technical forms of energy efficiency can be realized through analysis of compressed air usage, ventilation systems, cooler fans, water treatment, temperature controls, furnaces, door seals, machine calibrations and a myriad of other issues, depending on a facility’s specific requirements.

At the end of the day, however, the CEO commitment to cutting energy costs is critical. With corporatelevel support, goals, planning, data gathering and implementation combine to create a sustainable cultural shift that places energy conservation at the forefront without major capital investment.

For the full story, visit

Tedious Tasks Go Virtual
From the pages of Material Handling Management

Material handling managers have a lot on their plate these days. As a result, it can be difficult to deal with basic human-resources tasks such as putting together employee work schedules and juggling requests for time off.

One potential solution is to put internal communications online. For instance, a new addition to RedPrairie Corp.’s Workforce Management software allows employees to go to a Web portal to confirm their work schedules, check hours worked, submit time-off requests and access other job-related information. In addition, once a manager approves a request for time off, the employee is notified, and the software does not schedule the employee for that time.

Employees can also check their work schedules through a WAP-enabled (wireless application protocol) device, such as a mobile phone or PDA. This capability can appeal to the mobile, tech-savvy interests of the new generation of workers known as the Millennials.

Most importantly, the secure, self-service application enhances employee and management communication while relieving supervisors of some administrative tasks. That way, managers can focus more on customer needs and operational efficiency.

For the full story, visit

Improve Supply Chain Efficiency
By Terry Glass
application technology leader, rigid plastics, the Dow Chemical Co.
From the pages of Material Handling Management

Improving supply chain efficiency is often measured by hitting certain targets. The targets, however, that supply chain managers are aiming at today are entirely different from what they used to be.

Hewlett-Packard recently announced a goal to reduce energy use in its supply chain by 20%. Wal-Mart continues to challenge its supply chain to meet aggressive targets, most recently by measuring the energy used to create the products that it sells in its stores.

In 2008, supply chain management is an exercise in increasing efficiency. Most current industry trends are focused on delivering excellent performance with low impacts on energy use, the environment and a number of other areas. Add downgauging rigid plastic containers to the list of trends.

Downgauging? Yes. Plastic rigid intermediate bulk containers (RIBCs) are valued in the supply chain for their durability and resistance to corrosion or other damage from harsh chemicals. Compared with steel containers, plastic RIBCs can offer similar performance at a lighter weight.

Downgauging takes the lightweight benefit one step further. When plastic blow molders talk about downgauging, they are talking about a process in which a molder uses a high-performance resin to manufacture a RIBC that potentially weighs less than existing RIBCs, while providing similar or better performance. The walls of the container are thinner, meaning that less plastic material is used to manufacture the container.

It may be unusual for a supply-chain manager to pay attention to the type of material used to make a plastic container. However, in 21st century logistics, every detail is critical.

Along with lighter weights, downgauged rigid containers may have thinner walls that help preserve storage space.

Many sustainability initiatives have elements that focus on reducing material usage. For example, Wal- Mart has said it wants to cut packaging waste at its store by 25% within three years. Using downgauged rigid containers can help contribute to that goal.

For the full story, visit

Five Costly Mistakes
By Frank Pennachio
co-founder, director of learning, Institute of WorkComp Professionals
From the pages of Material Handling Management

While Workers’ Compensation Managed Care (WCMCO) is widely viewed as a means of controlling expenses, the results are sometimes different. Here are five common mistakes that are often made when working with WCMCOs.

1. Employers assume the goals of the WCMCO are aligned with their goal of safely returning the employee to work as quickly as possible.
2. Employers engage a WCMCO that does not have physicians who are properly trained in occupational medicine.
3. Employers don’t realize the importance of evidence- based guidelines.
4. Employers don’t engage in relationships with medical providers.
5. Employers don’t require quantitative measures of results.

All too often, the current system, as structured, produces unintended bad results. Employers need to turn their attention to the way workers’ compensation organizations think about, implement and measure their performance.

For the full story, visit

Top 10 Reasons Good Employees Quit
By Dan Charney
managing partner, Direct Recruiters Inc.
From the pages of Material Handling Management

According to the U.S. Department of Labor and Statistics, turnover can cost an organization 33% of an employee’s total compensation, including both salary and benefits. The impact is not only financial; it also affects employee morale. And, bad morale results in a domino effect that negatively impacts productivity.

Obviously, it’s prudent for managers to reduce turnover rates. However, one must first understand the main reasons good employees quit.

As a veteran search consultant, I have heard an infinite number of reasons first hand. Over the years, I have identified and compiled a list of what I feel are the top 10 reasons why good employees quit:

1. The job was not as expected.
2. Work/life imbalance.
3. Mismatch between job and new hire.
4. Management freezes raises and promotions.
5. Feeling undervalued.
6. Lack of decision-making power.
7. Too little coaching and feedback.
8. Management lacks people skills.
9. Too few growth opportunities.
10. Loss of faith and confidence in leaders.

For the full story, visit

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