IW Best Plants Profile - 1997

Process 80% of the fuel for nuclear powerplants in the U.S., as well as utility companies in 14 other countries.
Zero customer rejects in the last five years -- all product shipments 100% within specification.
On-time delivery rate 100%.
Total cost of quality 0.6% of sales.
6,000 improvement ideas generated by employee problem-reporting-and-suggestion system in 1996.
96% equipment availability rate.
Average of 10 days of formal training annually for production employees.
Manufacturing costs per unit of product reduced 10.9% in the last five years. Excluding purchased materials, per-unit costs down 19.6%.
Continuous-improvement efforts spurred by the formation of more than 50 project teams since 1992.

Perhaps it has something to do with the fact that the huge production facility he runs is located smack dab in the middle of a 4,000-acre wildlife refuge -- complete with pesky beavers and a herd of deer. Or maybe he just enjoys telling animal stories. But if you ask Steve Polston about the management philosophy that drove culture change -- and an impressive business turnaround -- at the Paducah Gaseous Diffusion Plant (PGDP) in Paducah, Ky., be prepared for a few lessons in zoology. For instance, there's his yarn about the "tiger rabbit" -- a creature that has become the stuff of western Kentucky legend. Polston, who is general manager at PGDP, a nuclear-fuel enrichment facility owned by the federal government and managed by Lockheed Martin Utility Services, likes to show a picture of one of these critters. It's your basic rabbit, but it has black-and-orange stripes. "It might look a little bit like a tiger," says Polston, "but you can't expect it to act like a tiger." In a sense, that was his perception of the PGDP complex about five years ago, when the initial steps were taken to begin transforming the 1,550-employee facility from a financially struggling unit of the U.S. Dept. of Energy (DOE) into a businesslike operation. An important step was passage of the Energy Policy Act of 1992, which spun the Kentucky facility out of DOE -- along with a sister plant in Portsmouth, Ohio -- and into a newly created government entity, the U.S. Enrichment Corp. (USEC). Legislation adopted in 1996 set in motion a plan to eventually privatize the business. "In the beginning," says Polston, "we knew we weren't a real business -- even though they called us a business." For one thing, the culture of the plant was mired in a can't-do mentality, the legacy of years of bureaucratic oversight. For another, costs were out of control. "We had been losing market share because our costs were going up rapidly," Polston recalls. In the early 1990s DOE analysts had projected that USEC's world market share would drop from 46% to less than 20% by the year 2000. And there was speculation that the two plants might close for good early in the 21st century -- a rather ominous projection, since the USEC plants together supply 80% of the fuel to run nuclear powerplants in this country. If they shut down, the U.S. would no longer be self-sufficient in nuclear-fuel-processing capability. In trying to turn things around, the first challenge was to get costs under control. But it was clear that would require cultivating new attitudes -- in the management ranks as well as among the unionized workforce, which is represented by the Oil, Chemical & Atomic Workers (OCAW) Local 3550 and the United Plant Guard Workers of America. Explaining PGDP's approach to cost-control issues, Polston sets the stage with -- you guessed it -- another animal story. When an elephant is young, he points out, it is trained to stay in place by a short tether attached to its leg and tied to a stake. After years of conditioning it associates the tether with an inability to move about freely. "When an elephant grows up," Polston explains, "you can hold it in place with a piece of old clothesline. After I came here six years ago, I began to envision us as a big elephant restrained by a small rope. Our workers thought it was impossible to get our costs down." One way to begin changing that mentality was an infusion of new management blood. Polston began recruiting senior managers with backgrounds in commercial nuclear power -- people who understood the realities of a competitive business environment. "I wanted to break that rope," he explains. "I wanted their private-sector mentality to rub off on us." He also began preaching the merits of cycle-time reduction and elimination of non-value-added activity. At the same time, training, communications, and quality and teamwork initiatives were intensified -- with the support of OCAW union leaders. A primary cost-reduction thrust has been to emphasize the use of lower-cost, nonfirm power, since electricity represents 60% of the facility's total costs. To accomplish this, the plant took a more aggressive approach in using freezer/sublimer equipment developed by the Paducah engineering staff, as well as a sophisticated computer system, enabling the plant to reduce power consumption during high-price periods and then make up the production slack by increasing power usage during off-peak hours when rates are lower. A second key initiative -- which called for broad involvement by the workforce and rigorous adherence to procedures -- was to improve the reliability of process equipment. A strong preventive-maintenance program was beefed up, and workers were encouraged to participate widely in a problem-reporting system that has cultivated a continuous-improvement mentality. When an employee points out a problem or potential problem, it goes into a corrective-action system that plant officials describe as a "bear trap" that forces follow-up activity. In some cases, joint union-management teams are formed to investigate and implement solutions. In 1996 the problem-reporting/suggestion system identified 6,000 plant issues -- generating about 10 times as many improvement ideas as in years past. When an employee fills out a problem-report form, he or she is required to include suggestions on how to solve the problem. "Some of the suggestions have been very creative and insightful," Polston notes. "We identify low-threshold problems before they become bigger problems." Coupled with the problem-reporting system has been an extensive effort to train employees in root-cause-analysis methods. At the core of PGDP's extensive employee-communications program has been an effort to translate business goals established by USEC into terminology and objectives that the entire workforce can identify with. After a winnowing process, emphasis was placed on three key goals:

Ensure an accident-free environment.
Strive to get 100% of the plant's production cells on stream.
Reduce the cost of SWUs -- that is, "separated work units," a measure of the effort required to boost the U235 level in the uranium hexafloride (UF₆) processed by hundreds of "converters" in the four-building production complex.

To keep employees abreast of progress toward the goals, the latest performance metrics are posted on a large sign at the entrance to the property, so that when they drive in each morning workers know exactly how they're doing. In addition, color-coded charts posted in strategic locations provide at-a-glance updates on progress toward the current Top 10 plant objectives -- which are established annually under the PGDP Quality of Operations plan. So how have they been doing? Well, the predicted falloff in market share never occurred. In fact, since 1992 USEC -- which generates more than one-third of its annual revenues from sales to overseas customers -- has increased its domestic market share and boosted its export sales. In the last five years the Paducah plant has reduced its manufacturing costs by nearly 11%, while establishing an enviable record of shipping product 100% on-time and 100% within specification -- without maintaining an inventory buffer. And the folks at USEC headquarters in Washington have ample reason to be pleased with the bottom-line results. "We're an example of efficiency in the public sector -- and we make a tidy profit for the U.S. Treasury," says John R. Dew, who oversees training programs at Paducah and carries an unusual title -- manager of mission success. "Our management team has taken a 45-year-old bureaucratic government operation and turned it into a profitable business that is at the top of President Clinton's list for privatization." For 1996 USEC was able to report net income of $304.1 million on sales of $1.41 billion -- an enviable 21.6% profit margin. If the U.S. Treasury Dept., the USEC's sole shareholder, eventually does approve the sale of the business to private interests -- a move that could take place early next year -- it will mean a nice windfall for Uncle Sam. By some estimates, the sale could prove to be the biggest U.S. privatization move ever, exceeding the $1.6 billion sale of Conrail in 1987. Securing final approval of the sale could prove a bit sticky, however, since the new owners would obtain access to what is still considered highly classified technology -- including AVLIS, a next-generation enrichment process being developed by USEC, in conjunction with Bechtel Corp. Perhaps a little history will put the national security issues into perspective. The Paducah facility was built in 1952 by the old Atomic Energy Commission, under orders from President Harry Truman, to produce enriched uranium for thermonuclear warheads -- as a hedge against possible war in Southeast Asia. The site met all of the official site-selection criteria established during the early years of the Cold War and at the height of Sen. Joseph McCarthy's anti-Communism crusade. For one thing, Paducah was more than 100 miles from any city with "known Communist activity." In addition to the official criteria, the site selection no doubt also was influenced by the fact that Paducah was the home town of Alben W. Barkley, then U.S. vice president. By 1964 the U.S. had developed an ample supply of weapons-grade nuclear material, and the Paducah facility was converted to production of fuel for nuclear power plants. In simple terms, the enrichment process involves heating cylinders containing solid UF ₆ until it gasifies, then forcing the gas through a miles-long enrichment "cascade" -- a series of converters separated by jet-engine-like compressors. In each converter, uranium molecules pass through a porous material, which gradually separates the lighter U235 molecules from the heavier U238 molecules -- creating an "enriched" stream with a higher concentration of U235. The enriched stream is eventually withdrawn and cooled to a solid state in 14-ton cylinders. Electrical power to drive the 1,860 motors in the system comes from two primary utilities -- including a nearby Tennessee Valley Authority plant -- along with electricity purchased in the open market and "wheeled" to the Paducah site. The power is distributed through four large power switchyards, one for each of the four processing plants. "Just one of these switchyards could handle the power needs of a city the size of Washington, D.C.," explains Terry Sorrel, customer-relations representative. The heart of the production complex is a large circular control room that monitors the operation of all the equipment on site. One section of the control room, called the "Power Pit," manages the purchase and distribution of all electrical power used throughout the facility. "Our goal," says Ron Taylor, power-operations manager, "is to have a reliable power supply at the lowest possible cost." Thanks to the sophisticated freezer/sublimer equipment, the power load can be quickly adjusted by freezing or subliming up to 200 tons of uranium gas. To reduce power requirements, UF ₆ gas is withdrawn from the system and frozen. Much of PGDP's progress during the last five years can be attributed to a cooperative union-management relationship, which has led to the creation of joint union-management teams at various levels. For example, an empowered union-management team developed a system to provide better heat protection to people working in high-temperature areas. Teams also have improved quality and maintenance efficiency (the site has 300 maintenance workers). And one team developed a six-year plan for facility upgrades. Now, an effort is underway to expand the team concept by creating high-performance work teams that will be responsible for day-to-day operations. Added impetus for this initiative came from a visit by union and management representatives to another Lockheed Martin plant -- a former "Best Plants" winner -- in Moorestown, N.J. "Teamwork is a win/win situation, but we realized that we were functioning on a project basis," says Steve Penrod, operations manager. "At Moorestown, we saw a culture of teamwork in day-to-day activities." Union officials support the high-performance team concept, says Mike Jennings, an OCAW representative for continuous-improvement programs. "It is a slow process, since it is a big change in culture," he says. "We aren't going to force teams on anyone." Paducah has taken a team approach to operations performance improvement, placing heavy emphasis on a "conduct of operations" code that demands "rigorous attention to detail," says Penrod. As part of the effort, a team including hourly workers developed a "Code of Professionalism" that specified how employees should conduct themselves on the job. Undergirding all of the performance-improvement efforts at Paducah has been an extensive communications effort -- which includes "All-Hands Meetings" twice a year for 1,200 or more employees. "At these meetings, we reinforce our expectations, we discuss our performance measures, and we give people the opportunity to comment and raise any issues they may have," explains Howard Pulley, enrichment plant manager. "Among other things, they may tell us which of our systems are causing them to not be efficient." Then there are "C2" meetings -- in which small groups of employees focus on compliments and concerns. Every other month, 15 people are selected at random to participate. After discussion, the groups vote on their top three compliments -- citing things that are being done well -- as well as their top three concerns. "We follow up on their issues and then provide feedback," Pulley says.