Project Overview
Project Background
This case study involves a supply network from a number of aluminum smelters to a single processing plant. A combination of trains and trucks were used to transport aluminum ingots from the feeding plant locations to the central processing plant in Kentucky.
Given the lengthy lead-time for supply and the high-cost of aluminum, the receiving plant wanted to look at the potential of introducing lean methodologies for inventory replenishment.
Value stream maps and spreadsheet analysis had proven that a pull replenishment system for the ingot buffers, with preset reorder points and reorder quantities, could be implemented to reduce raw materials at the receiving plant. However, concerns about the ability of the system to handle supply variability prevented its implementation.
The Solution
Simulation Model
A simulation model of the system was developed to evaluate the capacity of the supply network under both the current push and proposed pull supply scenarios.
The model was capable of simulating supply from the individual smelters with their associated production, travel lead-times, and variation. Under the push scenario, the model was used to evaluate: (1) supply capacity utilization, and (2) any transport constraints on the fulfillment of ingots at the plant within the required time frame.
As the supply for the various ingot types was being fulfilled from multiple smelter locations, it was possible to develop supply allocation methods that were more economical by modeling the process over time.
Analysis
The simulation model provided an excellent platform to test and prove the potential of an implemented pull replenishment system. It also helped to determine appropriate re-order point and re-order quantity levels by ingot type, so that stock-outs could be confidently avoided.
Detailed inventory and supply reports from the simulation allowed the user to evaluate each ingot over time. The amount of variability within the system could be modified according to ingot type in order to assess its suitability as a candidate for a pull replenishment policy.
Results and Outcome
The results of the study identified several ingots that could be managed under a pull-replenishment system.
This accounted for a $6 million dollar reduction in inventory (based on current aluminum prices), with inventory holding cost reductions of about $3/4 million annually based on a 12% holding cost.