4 effective ways PEB / Steel fabrication manufacturers can reduce the Raw Material Inventory!

1. Keep a check on Purchase vs Receipt

First thing first, a purchase order is a must for any steel purchase. If you are not making one, it is the first thing you need to start.

It is usually noted that most of the time we receive the material which is more than the purchase order. The reason is that mostly the extra material is accepted by the buyer. 

Obviously, the vendor will be doing higher billing in this case since the bill is generated on the weight of the material sent and not based on your purchase order quantity.

Also, in all PEB / Steel fabrication company, it is a common practice to order stock more than required taking scrap, loss, wastage etc. into considerations. Since the order is already more than the actual quantity required, receiving anything more than PO will surely increase your inventory and eventually your project costing.

It is recommended to set an ERP system or any other system such that you do not accept any material which is excess by 3-5% from your PO. With this practice, you will avoid stocking up any inventory which is more than required. 

Also, if you are not accepting the extra material, your vendor will eventually stick to sending material within purchase order tolerance.

2. Utilize your Non-Moving Stock

Most of the times, as soon as we get a new project, we focus on ordering raw material instead of utilizing the existing stock.

Let us assume you purchase 20mm nut n bolts for one of your projects. At a later stage due to some client modifications, the size of the bolt was changed from 20mm to 16mm.

Now what usually happens is, an extra order will be placed for 18mm bolts and the 20mm bolt would stand ideal in your store. Keeping up your space and money.

Is this not happening in your plant?

The best method for this is to ask for a Non-Moving stock report of items which are in store for more than 120 days (or whatever is your circle time). With this report, you will find out most of the material which will never be used in your projects. 

Now you can ask our design team, to keep a note of these items and try to design the building such that these items can be used. If the design team was planning to provision 18mm bolts, they will now change it to 20mm to utilize the stock.

It is a Win-Win situation and can save a lot of money for any steel fabrication or pre-engineered building manufacturer.

3. Raw Material Planning based on Job planning.

The standard practice of most of the Steel companies is to order the raw material as soon as the order is finalized to avoid any delay in the project due to raw material.

We all know that Steel / PEB projects take months to complete. So it is not like that the manufacturing would be started and completed with a few days of getting the order.

The best practice is to first plan the jobs which you will be manufacturing next month. When you are doing this planning, take into consideration your plant capacity (let’s say 700 TON per month). Big jobs might be split into multiple months planning and small jobs might be completed in 7-8 days itself.

Now that we have done the planning of jobs which we need to execute next month, we can do our Raw material planning based on the planning of the jobs. We only need the material which will be required next month. Isn’t it practical not to order all the material for a job which will take 6 months for manufacturing?

To do all this, it requires one to develop some complex excels. But even if you save 1% of your raw material, just imagine the saving you would be doing. This can also be done using Smaac Steel ERP which has a dedicated module of Raw Material Planning.

This is what we call Just In Time (JIT) inventory system developed by Japanese & used by most of the top companies. The best part is, you can easily accommodate Job changes, unwanted problems etc with this method. 

4. Proper Offcut Utilization

Offcut is one of the most ignored areas of most of the steel / PEB manufacturing companies.

Companies spend a lot of time in optimising nesting and cutting to reduce offcut & scrap, but what is the advantage if we are not utilizing this offcut?

A proper offcut stock with size and thickness need to be maintained by store department during shearing. It is recommended for any thickness of plate up to or more

than 500mm × 500mm to be considered as offcut.

With proper Offcut utilization, one can reduce more than 15% of raw material consumption resulting in big savings. To encourage this, it is recommended to set up a system such that the available offcut of the same thickness is available easily so the cutting person can take decisions and utilize it properly.

Without a good system, manually it becomes a difficult task to properly utilize the offcut.

This is not just talking, our clients and many other companies are able to achieve a lot of savings by following these methods.

So, to conclude, the raw material accounts for 35% to 50% of the total cost of the project. If all these methods are followed properly, you can save more than 10% in your project cost without spending a dime.

Want us to set this up for your PEB / Steel Fabrication company?

The above post is a directional post which will put you in the right direction. It took us about 15 years of hard work to figure out things to achieve these awesome results.

If you are someone who wants to set up this system and in the shortest time, we have created an ERP Software especially for PEB and Steel fabrication companies.

It is called “Smaac Steel ERP”.

It covers all the above-mentioned methods and a lot more to 2X your profits.

Comment your email in the comments or send your email id to me via messages. I will send you the details.

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