Perfect Partners An innovative agreement of cooperation with its union catalyzed ISP Corp.'s new-found success.
Tim Stevens ISP Corp., Calvert City, Ky.
At a Glance
- Plant size: 75 acres developed (140 total acres)
- Start-up date: 1956
- Special Achievements
- Winner of University of Louisville 2002 award honoring cooperative labor-management relations.
- In 1998 actual cost savings and increased profits of team-based continuous improvement totaled $1.43 million. In 2001 that climbed to $5.83 million.
"We had to make nearly two pounds of product for every one pound we could sell to one of our largest customers," laments Frank Stevens, site general manager, International Specialty Products (ISP) Corp., Calvert City, Ky. He was describing the 58% first-pass quality that bioadhesives had deteriorated to as recently as 1997. "But last year that unit had the highest first-pass yield for any of our products on site at 99.5%, and that shot up rapidly once we made the appropriate changes." While such process changes themselves were driven by the application of formal improvement methodologies and statistical analysis, these techniques could not have been implemented until the facility overcame the adversarial relationship that characterized union/management interaction during the previous 40 years. This is exactly what happened when the two parties signed a working partnership agreement, completely separate from the union contract, that provides specific guidelines to the kind of cooperative relationship they now share. Oddly enough, this High Performance Work Organization (HPWO) partnering agreement was created and driven by the union itself. "Toward the end of the '90s, the world was really changing," says Stevens, whose plant makes about 325 different specialty-chemical products for the personal-care and pharmaceutical industries by continuous and batch processes. "Profit margins were decreasing, our costs were spiraling out of control and we had productivity problems. On the one hand, we couldn't make things cheaply enough. On the other, we couldn't make enough of it. This is death. We had to make radical changes to survive." In 1995 contract negotiations with the union had been brutal and protracted with the company following a new hard line regarding wages and benefits in an effort to cut costs. "It left a bad taste in a lot of people's mouths," says Stevens. In fact, the combative relationship with the union was a significant barrier to the plant's ability to make the changes in quality, productivity and profitability it so desperately needed. While The International Association of Machinists and Aerospace Workers (IAM), watched layoffs and closings occurring at neighboring facilities, the union had already set plans into motion to address an overall dwindling of membership since the early 1990s. Union leadership recognized that for its members to prosper, it had to become a business partner with management. It responded by creating the HPWO partnering agreement, implementation program and a week-long school to teach it at the local level. The program was developed in concert with a number of manufacturing-management consultants as well as former U.S. Secretary of Labor Ray Marshall. Distilled to its essence, the agreement formalizes a culture of "working together" in terms of strategy, business planning and the daily operation of a plant's vital functions. Local IAM union leadership brought the HPWO proposal to management at the end of 1996. Shortly thereafter, Stevens came to his new position as site manager from General Electric Co., where participatory management, Six Sigma and continuous improvement were a way of life for him. "[Union leadership] realized, really before management did, that if we didn't do something, we were all going to go down together," says Stevens. The two sides worked out the details, leaders from both factions attended the IAM HPWO school, and the company began the 10-step process of adopting working together as their culture and modus operandi. "In the past, the ISP site was operated in a very technically oriented fashion, with few management systems, work processes or effective business processes," says Stevens. "With the HPWO in place, we spent a lot of time jointly defining manufacturing excellence and breaking it down into tasks and activities the worker on the midnight shift could understand and showing how they could contribute to overall success." This open dialogue helped clear one of the biggest hurdles to the union/management relationship. "Before, we had a real problem with trust," says Monty Newcomb, president, IAM Local 1720 at ISP. "The trust level now is very high, and grievances are way down [from about 100 per year to two or three per year]. Now the atmosphere here is the kind I always wanted to work in. Both sides benefit so much more from this working partnership." One significant consequence of the partnership is that all seven individual production and service units at ISP Calvert City are each now jointly run by a team of a management and a union representative. Real change from the new-found ethic didn't kick in at ISP until 1998, sparking a revolution in management's ability to introduce and implement continuous-improvement tools. This is due in large part to workers being given competitive and financial performance information; and participating in decisions affecting them. "Everybody has the same goal now, to kick the competition's rear," says Edward Seeley, materials handler. "And everybody knows who the competition is. Before it never occurred to most union employees, like myself, that there even was any competition. Our competition was with the company itself. Now everybody is looking at the overall picture, working to make the plant run more efficiently and stay competitive in the marketplace." Resolving the 58% first-pass yield on bioadhesives is a prime example. Prior to the HPWO agreement, the engineering staff at the facility had tried in vain to improve quality. The process seemed so complicated, according to engineering, it took an 11-inch-by-14-inch spreadsheet to characterize all the process variables, yet quality was still unacceptable. Enlisting the help of QualPro Inc., Knoxville, Tenn., a continuous-improvement consulting firm specializing in total team involvement, ISP gathered the entire bioadhesives production team of 24 workers from operators to packagers, and trained them in statistical problem solving techniques. Then in concert with engineering, the entire team was invited to a formal brainstorming session to solve the viscosity-control problems that plagued the unit. In the final analysis, multi-variable experiments were designed that identified just three process parameters worthy of close attention, and first-pass yield skyrocketed. Team-based Six Sigma now forms the foundation of continuous improvement throughout the plant. In its first year, 1998, actual cost savings and increased profits of team-based continuous improvement totaled $1.43 million. In 2001 that climbed to $5.83 million. Over the same time period, first-pass yield on six key products is up from 88.6% to 97.5%. SMOOSI (slow moving, obsolete and off-standard inventory) is down from $5.9 million in 1997 to $1.1 million in 2001.
Web-Exclusive Best Practices
Benchmarking contact: Frank Stevens, site general manager,
Working Partnership Agreement
To overcome the adversarial relationship management with the union, the two parties signed a working partnership agreement, separate from the union contract, that details the nature of cooperation between the two parties. Called a High Performance Work Organization (HPWO), the partnering agreement was created by union leadership of the International Association of Machinists and Aerospace Workers. The HPWO establishes a format for developing a culture of trust, respect, ownership, communication and cooperation for locals and their company's management. Specifically it details how the parties will make the many decisions required for overall planning, strategy and daily operation of the plant's vital functions. Categories include staffing, asset and resource deployment, communications, continuous improvement, definition of quality, application of new technology, training and business planning.
ISP Corp. has an effective gain-sharing program with a few interesting twists. First the name of the program, ISP, matches the company name: Improvement equals Savings equals Payout. Unlike a profit-sharing program, it only pays when there are improvements, doing so on a quarterly basis. The key measures are manufacturing conversion costs (excluding raw material costs, taxes, insurance -- any costs the plant operators cannot affect) and first-pass yield (FPY) on six key products. Conversion costs must be lower than a two-year average. The difference in conversion costs from the average, multiplied by pounds produced in the quarter, generates the bulk of money in the kitty for disbursement. Performance in customer service and safety/environmental areas contribute as well. For instance if customer complaints are lower in the quarter, add $2,700 (an average calculated cost based on rejected material and cost of resources to investigate and resolve the complaint, reviewed annually) for each complaint not received. If a customer makes a repeat complaint, deduct $2,700. Spills and releases add or detract from the total to the tune of $5,000 per each compared with a baseline. Savings are split between company and employees based on a factor applied to the total of monies from the conversion cost, customer complaints and spills/releases accumulations. The multiplication factor is based on a combination of first-pass quality and production level of high-demand products (those where everything produced can be sold.) set up in a matrix of FPY and production compared to plan. For instance if FPY on key products is 97.5%, and high-demand product is produced at 20% over plan, employees get half of the money in the kitty. Right-on plan production of high demand products, with FPY of 95% on key products, employees get just 20%. ISP suggests this multiplier concept is unique. Every employee, management or labor, shares equally, though payout can be affected by hours worked in the quarter. Also, 25% of the total gain in a quarter is put into a reserve before calculation of payout to provide a safeguard for the plan against any quarter with lower than expected performance. Total gain sharing in 2000, the program's first year was $770 per employee. In 2001 this climbed to $1,430. In the first two quarters of 2002, employees have gained about $800 each.
Valued Customer Program
Designed to align resources against its best customers, ISP corporate has initiated its Valued Customer Program to guide the actions of sales, marketing, customer service and manufacturing efforts. Each customer is ranked based on a formula combining growth and profit potential using an A-through-D structure, as follows:
- high growth and profit potential, high impact, valuable partners, multinational.
- Very important core business, large volume, high profit, limited growth potential.
- Low volume, good profit, limited growth potential.
- All others, candidates for alternate distribution.
Stratifying the customers in this way will help the company be consistent and disciplined in dispensing product and services. In terms of daily operations the customer rating system will impact product allocation, technical services levels, availability of special documentation and quality data, order expediting, special payment terms, alternate shipping opportunities, availability of product samples, special labeling, package recycling, product consignment, supplier-managed inventory, and special packaging. For instance orders placed before noon will be shipped from stock the same day for A customers only. A and B customers do not incur pallet charges. After but one year of implementation, specific results have yet to be quantified, however the objective is, by limiting service to some customers and being generous with those most important to the company, overall costs will be reduced, and all customers will ultimately benefit.