Best Practices -- Ground Support

Lean efforts bring armored vehicles to soldiers faster and open revenue streams for defense contractor.

War doesn't wait for a slot on a production schedule. Or room in a warehouse. Or the ironing out of a supplier bottleneck. Fortunately for U.S. soldiers facing enemy guns, explosives and other life-threatening weapons in Iraq, lean culture had already infiltrated the Mobile Security Division of Armor Holdings Inc. ($365 million in sales) when, late last year, the U.S. government decided it needed hundreds of armored Humvees immediately for soldiers in Iraq. The military turned to O'Gara-Hess & Eisenhardt, one of Armor's eight companies within the Mobile Security Division, which had been producing armored Humvees since 1994. That's the year that Gary Allen arrived, loaded with lean lessons he had learned at GE Aircraft. Allen, senior vice president and general manager of the $157.5 million Mobile Security Division, says it was pervasive lean thinking and systems that gave the company confidence that it could very quickly ramp up its production of armored Humvees, from about 60 units a month to just over 220 a month, with an eventual target of more than 400 a month. The company could produce as many as 3,000 this year. (During peacetime, it builds about 600 a year.) Under Allen, the O'Gara-Hess & Eisenhardt value chain had shrunk the production of an armored vehicle from four months to seven days. "We work faster, better, cheaper on everything -- whether it's our international business, our government business or whatever it might be," Allen says of the Fairfield, Ohio-based manufacturer. "And, along the years, we've built a very good supplier base. They are able to respond with us. In some cases, these are smaller outfits, and I have a vested interest to make sure these guys are financially stable. I've worked closely with them." O'Gara-Hess & Eisenhardt's build-up to war-time production has mirrored the traditional build-up to war in that a lot of little events have led to major ones. For instance, 10 years of lean practices had freed up ample space at the company's manufacturing campus. That meant it could quickly relocate its commercial production in order to make room for the expanded armored Humvee work. (In addition to numerous government contracts, O'Gara-Hess & Eisenhardt also produces about 2,000 customized vehicles for private customers annually.) The company carries so little inventory and has reduced steps and space to the point that relocating the commercial operations took one weekend. Additionally, years of building a loyal, flexible supplier base that can respond to the sometimes-jarring production spikes of a defense supplier meant minimal work in terms of coaching suppliers when the call for the armored Humvees came. Allen did send consultant Ray Attiyah around to make sure the suppliers had what was needed in terms of capital. Many of them had followed O'Gara-Hess & Eisenhardt's lead on lean practices through the years, so supplier ramp-up was also quick. To make the army red Humvees, the company receives a fortified chassis and then uses steel, ballistics glass and other materials to build an armored box on top of it. Suppliers include traditional steel mills as well as companies making specialized materials and components. "We can act faster than any of our competitors, and it gives us a competitive advantage," Allen says. The company also hired more production workers, and -- another little thing -- didn't need to do a lot of training. "We have [our process] so refined that it's easy to bring an entry-level employee in and very quickly teach him his basket of work," Allen says. "We're working with so many cells, and if we want to double [output], we just double it. We have worked with [lean operations] so long, we are confident we can do it, and it's exuded through my workforce." The lean initiative at O'Gara-Hess & Eisenhardt has been so successful that it has spread to the other seven companies within the Mobile Security Division. Allen says without the lean foundation, his division simply would not be agile enough to grab high-revenue opportunities, such as the armored Humvees. Armor Holdings increased revenues from continuing operations 20% in its 2003 fiscal year and is projecting revenue growth of 70% for 2004. In the fourth-quarter of 2003, the Mobile Security Division increased revenues 41% on a year-to-year basis. Net income for the company increased to $10.9 million for fiscal year 2003, up from a loss of $17.7 million the prior year. But more striking, not only has the decade-long initiative improved the division's profitability and revenue growth, it's helped save the lives of Americans in combat. "I've gotten letters from the parents of soldiers, and they attest that [their children] are alive today because they were in an up-armored vehicle when they hit a mine," Allen says. "And they all walked away."

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