A shift to cellular manufacturing helped EG&G Astrophysics realize a threefold increase in productivity . By Tim Stevens At A Glance
- Productivity increased by 300% since 1993.
- Manufacturing cycle time slashed by 94%.
- Order leadtimes reduced by 75%.
- First-pass yield of 98%.
- Internal defects of just 220 ppm.
- 100% self-directed work teams.
- Leadtime on purchased materials reduced by 98%.
- Total inventory reduced by 52%.
- Manufacturing costs reduced by 75%.
- ROA increased by 35% during the last five years to 55%.
- 65% reduction in rework.
- Labor-hours to produce a unit decreased by 75%.
Shortly after the tragic Oklahoma City bombing in 1995, President Clinton made a commitment to significantly increase security at federal buildings by the one-year anniversary of the attack. With just two months remaining before the deadline, EG&G Astrophysics won a contract from the General Services Administration (GSA) to build and deliver appropriate security screening systems. Pressed by a GSA delivery requirement of 30 days, Astrophysics kicked into high gear and shipped 300 X-ray security systems in April 1996, a feat that would have been unthinkable before a complete restructuring of the operation began to take hold in 1994. For instance, during 1993 Astrophysics shipped a
of 479 units with roughly the same headcount. However, a remake including a shift to cellular manufacturing, team-oriented employee empowerment, and strong supplier partnerships -- all within a culture of continuous improvement -- gave the world's largest manufacturer of nonintrusive detection systems, X-ray screening, and metal detectors the capability to deliver on-time, "essentially placing us in a sole-source position for additional orders," says Jim Reynolds, director of materials. Originally a sole proprietorship, EG&G Astrophysics was birthed as Scanray Corp. in 1971 and acquired by EG&G Inc. in 1988. As late as 1992, flexibility and agility were hardly watchwords at Astrophysics. "At that point we had manufacturing and operations people who were of the 'old mentality' -- production-line-type management, high inventories, and long leadtimes," says Tom Schorling, president. "The management style was very autocratic -- with a VP of manufacturing, a couple of shop foremen, and [the rest] workers. There were no layers of management down on the floor." Even with this management scenario, Astrophysics dominated the market, mainly airline customers, because there was little competition. But that began to change around 1989, exposing the weaknesses of the old Astrophysics system. "To accommodate growth, we bought more inventory and set up more manufacturing lines, all of the traditional ways to do it," says Schorling. "But we were complacent, and some of that complacency allowed competition to emerge with newer technology." In addition to competitive forces, the nature of the security marketplace began to change. Business was expanding into nonaviation applications including access control at government buildings, mailroom inspection of incoming parcels in corporate offices, and screening at special events such as the Olympics and rock concerts. With delivery times from 30 to 60 days, first-pass yields of just 3%, and plenty of added cost through waste and rework, Astrophysics was vulnerable. "When an executive gets a mail-bomb threat, they don't like to hear we have a six-to-eight-week leadtime," says Schorling. "They want a machine tomorrow. We just weren't able to respond." Recognizing the need for change, in 1992 new management at EG&G corporate enlisted the services of an ex-Coopers & Lybrand process-improvement expert who had been hired into another EG&G division after a successful consulting stint. Now director of operations, Jane Song was challenged to restructure the operation and make it more efficient and responsive to the marketplace. To begin the turnaround she established 10 "core teams" of lower-level employees, each team chartered with continuous improvement of a function/process, including cellular manufacturing, bills of materials, order entry, supplier partnerships, quality at the source, product costing, assembly instructions, leadtime reduction, engineering procedures, and customer service. Cross-functional, the teams were composed of hourly and salaried volunteers with no upper-management members. However, a steering committee that set priorities for the teams was entirely senior management. "All the team members were voluntary, so all wanted to be champions for change," says Song. "And no upper management were on the core teams because we didn't want dictation -- we wanted the members to be free to speak their mind." The teams were trained in problem solving, process analysis, teaming, value/nonvalue analysis, and project management, to name a few disciplines. For instance, to identify and eliminate nonvalue in the process, Song taught "routing by walking around," where a person walks around through a process as if he or she were a piece of product or a document. At every stop, the person asks, "Why am I stopping?" and "How long will I stay here?" The first success was realized in the supplier-partnership team, which achieved a 20% reduction in purchase price and an 80% reduction in inventory through a pull system that began to evolve as the factory converted from traditional to cellular manufacturing. Incredibly, some senior managers resisted the changes blossoming from the core teams. "People couldn't let go," says Song. "The manufacturing and materials managers found themselves losing control. If it wasn't their idea, they were not a supporter. It used to be we beat suppliers down to the lowest cost. Now we were talking about going from a win-lose situation to a win-win. It required a total change in mindset." Unable to make the change, the existing upper management was offered exit packages and asked to leave. The new management team included Song as director of operations; a new president, originally a Scanray executive who had left for a competitor; and a new director of R&D. "With the new top management committed to the continuous-improvement process, change began to accelerate," says Reynolds. Out of the core teams grew the spirit of self-directed work teams, now the norm in the new cellular-manufacturing scheme. A key structural change driving improved productivity, the cellular concept allowed just-in-time control of inventory via supplier partnerships and freed cell members to apply their creativity as a team to problem solving and continuous improvement. "We told the cell teams, you can do whatever you want, but these are the guidelines: one consistent process and procedure, fastest and lowest cost, with 100% quality built in," says Song. "Now you tell me how to build the machine and get rid of all the rework." For the first time, assembly processes were written down and made consistent. Incoming and in-process inspections were eliminated in favor of a "quality at the source" initiative at the cell level, freeing six inspectors for value-added work. "Empowering work teams to inspect their own work by taking ownership of the inspection process resulted in a 96% improvement in first-pass yield and reduced problems found by customers during system installation by 45%," says Song. In the process of converting to a cellular concept, manufacturing space was reduced by 44,000 sq ft (including a 30,000-sq-ft warehouse six miles away), cutting material travel by 12 miles and eliminating $100,000 annual overhead. On the manufacturing floor itself, material travel was reduced from 1,000 ft to 200 ft. Inventory was moved to point of use directly in the cell via just-in-time
instituted with key suppliers. Stockrooms where workers used to queue up to get parts had their walls and locks removed. Now multiple parts purchased from the same supplier are kitted-up to reduce part numbers, provide partial assembly, eliminate missing parts, and match colors for painted parts. For instance, a common parts initiative allowed 30-plus part numbers from one sheet-metal supplier to be reduced to just one kit part number. Standardization reduced fastener count from 2,000 to 150, allowing the fasteners to reside directly in the cells managed by a pull system. In total, inventory has been reduced 50%, annual inventory turns have grown from two to 12, and the labor-hours required to produce a unit have decreased by 75%. Manufacturing cycle time has been reduced from 30 days in 1992 to two days, with headcount increasing by just 24 from 271 to 295, which includes adding a new division's product line. To drive quality and productivity back to the beginning of the new-product-development cycle itself (products developed in the last year account for 60% of sales), mechanical-design engineers are required to go through "boot camp," two weeks on the manufacturing floor, or they cannot receive a salary increase. In addition, end-use customers are regularly invited to "open houses" to make suggestions on new-product design and desirable features. Although these suggestions are often for proprietary needs, improved-design concepts are spread across all product lines. While these incredible increases in productivity make Astrophysics a formidable global competitor, the most significant impact may be on the employees themselves, who now have the opportunity to actually grow with the company. A case in point is Delia Harma. Waiting patiently as an assembler for 10 years, she was given the chance to be a cell leader under the new regime. Today she is a floor supervisor, acting as a facilitator for the cell teams by providing the resources and tools they need to be successful. "In the past we were more or less like robots," explains Harma. "We didn't have any say. We just did what we were told and didn't ask questions. Now we can make our own decisions, take things upon ourselves, and act on them. Now people feel like they are part of a group. They are happier, so they are more productive." According to Harma, no one was promoted from within in her first 10 years of employment. Today there is a career path, as evidenced by Harma's progression, and salary increases are now based on the breadth of jobs a worker can perform, first in his or her cell, then in other cells. This "earn as you learn" format encourages a flexible workforce. "Now you have something to look forward to," says Harma. "Before, it was who you know and how long you have been here, not what you know." These 100% self-directed cell teams have full responsibility for the operation of their cell, including hiring, work distribution, quality, training, and peer review. Individual performance evaluation is based on equal input from the cell leader (in consultation with other cell members) and from the floor supervisor. In turn, cell leaders evaluate performance of their support functions, including purchasing, planning, manufacturing, and engineering. As a group, teams can be rewarded on a monthly and quarterly basis for meeting cell goals for quality, productivity, and housekeeping with awards such as certificates for restaurants or shirts. "We found money was not a good motivator," says Song. Key to Astrophysics' success and increased productivity are its "best practice" supplier partnerships, the result of a core team assigned the task of developing these relationships. In the old days suppliers were selected based on price. Today, they are chosen on a total-value/total-cost basis. Potential supplier candidates are evaluated via a "desirability matrix" with criteria including quality system, price, on-time delivery, technical capability, responsiveness, continuous-improvement sharing, process control, "chemistry," and financial stability. With the five supplier partners currently in place (turnkey electronics, sheet metal, wire harnesses, diodes, and crystals), Astrophysics communicates production schedules and forecast information, jointly agrees on
sizes, invites suppliers to initial design sessions on new products, and shares cost savings. "In every supplier partnership we have realized an ongoing cost reduction that varies from 7% to 25% based on process improvements, not profit erosion," says Reynolds. "If a supplier comes up with a way to reduce our costs, we split the savings 50/50 with the supplier. That's written into all of our contracts. How do you promote innovation if you don't share the cost savings?" Since 1994 savings total $8 million, with an average leadtime reduction on class A purchased materials of 98%.