Mechanical finds savings, efficiencies with inventory network
Over the past year, three Mechanical Department facilities have become Norfolk Southern’s version of Amazon.com for locomotive and car shops.
In a significant shift from past practice, these centralized warehouse and distribution centers – rather than individual shops – now oversee NS’ inventory of locomotive and car parts. Valued at around $160 million, this inventory consists of approximately 19,000 types of locomotive components and 1,500 types of car components.
Locomotive components are housed at NS distribution centers in Roanoke, Va., and Altoona, Pa., while car components are handled at a Dayton, Ohio, facility.
Results so far include reduced shipping costs, quicker delivery of parts, and better visibility of inventory – a critical aspect of cost control.
The 24/7 operation – named the Thoroughbred Material Distribution Network – involves UPS as NS’ over-the-highway freight contractor. UPS trucks make runs between NS suppliers and the distribution centers and between the centers and mechanical shops picking up and dropping off parts.
With this “hub-and-spoke” approach, NS aims to lower costs, improve operating efficiencies, and, ultimately, better serve customers. Results so far include reduced shipping costs, quicker delivery of parts, and better visibility of inventory – a critical aspect of cost control, noted Doug Corbin, assistant vice president mechanical.
“We have a much better handle on what we have in our inventory and where it is,” Corbin said. “The idea is to reduce the inventory at the various shops from something like a 60-day supply to about a two-week supply. That’s a 25 percent cut of what it was and will help us control our expenditures on material. We haven’t realized the full potential yet, but the potential is great.”
Developing a system
Using the company’s SAP enterprise software, car and locomotive shops place online orders – called “picks” – with the centers rather than with NS parts suppliers for new and reconditioned parts.
“Part of our job is to be the guardian over the processes and how they flow,” said Cyndi Croft, manager parts distribution, who oversees operations at the Roanoke and Dayton distribution centers. “Our goal is to deliver a part or needed component within 24 hours. We don’t want to delay customers’ freight by having locomotives or cars sitting around in shops and repair tracks waiting on parts.”
The hub-and-spoke system, championed by Don Graab, vice president mechanical, grew out of a 2013 brainstorming session at NS’ Brosnan Forest. At the time, the department operated a daily “milk run” of trucks traveling from shop to shop between Chattanooga, Tenn., and Bellevue, Ohio, picking up and dropping off mainly used and reconditioned parts.
While serving a purpose, the milk run reached a limited number of shops and proved difficult to manage. Locomotive shops sometimes waited several days for needed parts, and, because inventory was scattered in shops systemwide, a part delivered to one shop often had to be picked up the next day and taken to another shop that needed it for a specific engine model.
The hub-and-spoke operation eliminates those issues. NS Modalgistics®, the railroad’s supply-chain consulting group, helped identify where to locate the distribution centers. A Modalgistics study showed that the large locomotive shops in Roanoke and Altoona comprised 60 to 70 percent of demand for locomotive parts. Because both also recondition engine parts for other NS shops, basing the locomotive parts distribution centers there made sense. The study showed that car parts are distributed evenly across the system, making Dayton, Ohio, the geographical center of NS’ network, an ideal location.
“We helped paint a picture with the data,” said Alan Brown, senior manager supply chain strategy. “It’s the type of supply-chain analysis we do for a lot of our customers.”
The Mechanical Department lowered start-up costs by picking buildings in Roanoke and Dayton that NS owned but were underused. The Roanoke center is housed in a renovated four-story brick building known as General Office Building East, next to the Roanoke Locomotive Shop. NS predecessor Norfolk and Western Railway constructed the building as a warehouse.
The Dayton center is in a warehouse constructed to store auto parts. NS leased the building to a business partner supplying parts to General Motors, but shifts in GM’s operations since the 2008 economic downturn left the facility underused.
“It’s more effective to serve the shops from a single central location,” said Daniel White, general foreman material, who manages the Dayton center. “It gives us better accounting of our parts inventory and improves asset utilization, especially for parts that are expensive or are older and harder to come by.”
The Altoona center is based in the storehouse that serves Juniata Locomotive Shop and supplies shops in NS’ Northern Region with parts reconditioned at Juniata. The center supports 33 different shop activities at Juniata alone, said Jason Hartman, senior general foreman, who has implemented the new distribution system in Altoona.
“We’re still in the incubation stage with this, but we’re seeing benefits,” Hartman said. “It’s going to be cost driven and very efficient.”
The benefits extend beyond mechanical. In an example of interdepartmental collaboration, the Roanoke center is providing space for the Charlotte Roadway Shop to store parts that track gangs need to repair maintenance of way equipment.
“Engineering is able to use the mechanical distribution network and put some of their material a day closer to a number of locations on the northern and western regions,” Corbin said. Brown calls it a “case of two teams pulling in the same direction to deliver what NS needed.”
Money, time, and green business
Every day, about 40 scheduled UPS trucks make stops at the distribution centers. Roanoke serves as the “mother store” for locomotive shops on the southern half of NS’ territory, while Altoona handles northern shops.
Managers at the centers communicate often with the shops to ensure needs are met. Every morning at about 6:30, for example, Croft reviews a computerized list of locomotives at each shop in need of repair parts.
“When a unit hits that list, I want it off the list in a day,” said Croft, a 31-year NS employee with a degree in industrial engineering. “If we don’t have the part, we’ll help them get it. It’s an ongoing process, but we are seeing reduced locomotive dwell time attributed to delays in getting repair parts.”
The eventual goal is for shops to set up “triggers” in SAP to automatically place orders for parts when their supplies drop below a specified number.
“We’re trying to get to a lean, just-in-time situation,” said Croft, which saves money by reducing the number of new parts purchased.
“I see positive returns on our investment as we explore the practical benefits SAP has to offer,” said Hartman.
At the distribution centers, employees on forklifts load and unload pallets and bins packed with parts. To increase efficiency at Roanoke, a first-floor area near the loading dock is used to store parts in high demand that move quickly.
Employees at the centers sort through boxes of failed parts sent from the shops to identify those that are under warranty and repairable. They examine serial numbers and manufacture dates and complete paperwork in SAP on parts shipped to suppliers for repair. Suppliers send repaired parts back to the centers to be placed in inventory.
Erik Page, a stockman at the Roanoke center, saved about $60,000 in repair costs one month by identifying equipment that was under warranty but not marked as such. “It looked new, and I checked on the computer and, ‘Oops’!”
In addition to saving money, the distribution system promotes sustainable business and advances sustainability efforts at NS.
“Instead of scrapping parts, we are recycling and reusing many of them,” Croft said. “By serving as a collection and distribution point for our locomotive and car shops, we don’t require as much material, which trickles down to suppliers who aren’t producing as much carbon footprint in the manufacturing process. We’re also making our truck routes more efficient, and that certainly equates to a lower carbon footprint.”