For years, Eaton's Cutler-Hammer business produced industrial circuit breakers at its plant in Arecibo, Puerto Rico. All 3,500 different models of finished breakers were then shipped to a warehouse in Duncan, S.C. for distribution to customers in the U.S.

Unfortunately, inventory and related costs were high at both facilities, and response times to customer orders were not improving. Something had to be done.

Today, Arecibo still makes breakers, but only 50 generic styles. Those unfinished products are then shipped in returnable containers to Duncan. Final assembly on those 50 generic styles is performed to customer specifications only when orders are in house.

'This is a classic postponement strategy. That was a major objective of this program,' says John Myers, lean enterprise support manager at Eaton Cutler-Hammer.

Other objectives were to reduce inventory levels and costs while becoming able to respond more quickly to customer orders. Arecibo now carries less inventory. Duncan trimmed its inventory by $600,000. Meanwhile, same day service rates that were once 90% now exceed 98.5%.

'Our service levels have increased dramatically,' says Nancy Connor, modification center manager at Duncan. 'What's so impressive is that before we had finished goods on hand. Now, we have to do final assembly before we can ship anything. And we're getting parts out to the customer faster now.'

A significant player in these gains is the new packaging used to ship breakers from Puerto Rico to South Carolina. Previously, corrugated containers were used. Unfortunately, they did not always hold up well to the week-long sea and highway journey. Not only did the packaging often arrive in poor shape, but breakers were often damaged too.

New returnable containers with special dunnage (Buckhorn, a Myers Industries company) protect the breakers better with less than 1% arriving damaged. The containers also keep the products better organized for final assembly, helping to speed those operations. The containers have also saved $300,000 in the first year of this pilot project, which affects only a third of the volume of breakers that move between the two facilities.

The need for a change originated in Puerto Rico. Inventory levels were determined to be too high, and the proliferation of stock keeping units had made production too cumbersome.

Myers and others at the corporate level considered two facilities in the U.S. to become a partner in Arecibo's postponement strategy. Duncan got the nod because it could handle large volumes of breakers and for its distribution capabilities.

'The corporation always looks for what makes the best business sense and what is best for customers. This was our chance to improve,' explains Connor.

Scaling back the number of stock keeping units built in Arecibo certainly changed the shop floor there. It also resulted in changes in both the physical handling of parts and the information systems that track them at both locations.

As item production in Arecibo is completed, each breaker receives a bar code that identifies the style. That bar code will later be scanned in Duncan, initiating a download of build instructions for a particular order. Connor says Duncan's information system required new interfaces and some additional programming to tap into the bill of materials and the company's manufacturing software.

After final test in Arecibo, breakers are hand loaded into two different sizes of returnable containers that replace the corrugated of old. One container size is 25 × 48 × 40 inches and the other is 34 × 48 × 40 inches. The two sizes accommodate different sizes of breakers.

In the container, each breaker is separated from those on each side of it by a plastic divider sheet of dunnage. Another plastic divider sheet separates layers of breakers.

Total cost of packaging for each breaker is now 28 cents. Corrugated costs were 36 cents per breaker.

A total of 23,000 breakers are shipped monthly. According to Myers, it takes nearly a month for the returnables to travel by ship to Jacksonville, Fla., by over-the-road truck to Duncan, move through the Duncan facility and then make the return trip to Arecibo.

The closed-loop system has 300 returnables, which are returned empty to Puerto Rico. 'The cost of the return freight disadvantage was overcome on the first reuse of the returnables,' explains Myers.

Once at the Duncan facility, the containers are handled differently than all other inventory, says Connor. Racking sized specifically for the containers is off to one corner of the facility. The dedicated rack area is 10 bays long and three bays high with two containers stacked in each bay. Lift trucks handle putaway and retrieval of containers.

When orders are received by the Duncan information system, required generic breakers are picked either by full container or individually, and brought to workstations located near the racks. These workstations did not exist prior to the launch of the postponement program. Connor says it took two months to work out the positioning and details of the new workstations.

Typically, wires, nuts and labels are needed to finalize production. Finished breakers are then packed for shipment to customers, which include other Eaton plants.

Connor notes that to ensure the success of this shift in manufacturing strategy, the company moved at a measured pace. For instance, nearly eight months elapsed from the time people in Duncan were told of the coming change until the first shipment of breakers arrived. Then the new system was not turned on all at once, but in several phases.

Initial shipment of product that had been finished in Duncan occurred two months after initial inventory arrived. Meanwhile, quantities were limited. Only four people were on the job at first. That number has gradually increased to the 15 now involved, says Connor.

Both Connor and Myers see a continued expansion of the postponement strategy. During the next 12 to 18 months, other styles of breakers will be introduced to the program, effecting still more changes in Duncan. By the end of 2005, Duncan is expected to be doing final assembly on all of the breakers shipped to it by Arecibo.

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